6/23/23,l6:06lAM Microeconomicsl8thleditionlperlofflsolutionslmanual
Microeconomicsl8thlEditionlPerlofflSolutionslManual
Full Download:l http://testbanklive.com/download/microeconomics-8th-edition-perloff-solutions-manual/
Chapterl2
SupplylandlDemand
ChapterlOutline
Challenge:l QuantitieslandlPricesloflGeneticallylModifiedlFoods
Demand
ThelDemandlCurve
EffectloflPriceslonlthelQuantitylDemandedl Eff
ectloflOtherlFactorslonlDemandl Application:l
CalorielCounting
ThelDemandlFunction
SolvedlProbleml2.1
SumminglDemandlCurves
Application:lAggregatinglCornlDemandlCurves
Supply
ThelSupplylCurve
EffectloflPricelonlSupply
EffectloflOtherlVariableslonlSupplyl T
helSupplylFunction
SumminglSupplylCurves
HowlGovernmentlImportlPolicieslAffectlSupplylCurves
SolvedlProbleml2.2
MarketlEquilibrium
UsinglalGraphltolDeterminelthelEquilibriuml
UsinglMathltolDeterminelthelEquilibriuml F
orceslThatlDrivelalMarketltolEquilibrium
ShockinglthelEquilibrium
EffectsloflalShockltolthelSupplylCurve
SolvedlProbleml2.3
EffectsloflalShockltolthelDemandlCurve
©l2018lPearsonlEducation,lInc.
Fullldownloadlalllchapterslinstantlylpleasel goltolSolutionslManual,lTestlBankl site:ltestbanklive.com
about:blank 1/72
,6/23/23,l6:06lAM Microeconomicsl8thleditionlperlofflsolutionslmanual
6 Perloffl•lMicroeconomics,lEighthlEdition
2.5 EffectsloflGovernmentlInterventions
l PolicieslThatlShiftlSupplylCurve
s
LicensinglLaws
Application:lOccupationallLicensing
l Quotas
SolvedlProbleml2.4
PolicieslThatlCauselthelQuantitylDemandedltolDifferlfromlthelQuantitylSuppliedl Pri
celCeilings
Application:l VenezuelanlPricelCeilingslandlShortagesl Pri
celFloors
SolvedlProbleml2.5
WhylthelQuantitylSuppliedlNeedlNotlEquallthelQuantitylDemanded
2.6 WhenltolUselthelSupply-and-DemandlModel
■ TeachinglTips
Thislchapterlreviewslbasiclsupply-and-
demandlconceptslfromlthelprinciplesl level.lYourlinteractionslwithl thelclasslfromlthelfirstlsessionlorltwols
houldlgivelyoulalgoodlindicationloflhowlmuchlclassltimeltolspendl onlit.lIflitlhaslbeenlsomeltimelsincelth
eirlprincipleslcourse,lstudentslmaylneedlfairlylconsistentlpromptingl tolrecalllthelbasiclsupply-and-
demandlmodel.lForlexample,lmanylwilllrememberlthatltherelislalLawlofl Demandlbutlwilllnotlrememberlt
hellawlitself.lEncouragelstudentslinlthelstrongestltermsltolreadlthelchapterl carefully.lItlislwelllworthlthelti
melspentlatlthislstageltolmakelsureleveryonelhaslsolidlrecognitionloflthesel basicltoolslandlconcepts.
Algoodlwayltolmotivatelthelchapterlislbylbeginninglwithlthelgeneticallylmodifiedlfoodlexamplelfoundlinl
thelChallenge.lTryltolkeeplthelconversationlfocusedlonlpossibleleffectsloflentrylorloflthelban.lLetlstudents
l brainstormlaboutlwhichlpartiesl mightlbelinlfavorloflalbanlandl whol wouldlbel opposedlandlwhy.
Whenlreviewingldemand,lbelsurelstudentslarelclearlonltheldifferencelbetweenl movementlalonglthelcurvel
andlalshiftloflthelentirelcurve.lTwolpointslshouldlbelhelpful.lFirst,lnoteltolthemlthatlbothlinlEquationl2.1l
andlonlthelgraphlinlFigurel2.1,lpricelislthelonlylindependentlvariablelpresent.lThus,lonlylpricelcanlcausela
l movementlalonglthel curve.lSecond,lunderscorelthelrolel oflotherlvariables.lAfterlcompilinglallistloflthel f
actorslthatlcanlshiftltheldemandlcurvel(onceltheylgetlstarted,lthelclasslaslalgrouplshouldlbelableltolprovidel y
oulwithlthisllist),lIlasklwhatlfactorslarelheldlconstantlalonglalsingleldemandlcurve.lSurprisingly,lthislquestionl i
sloftenlgreetedlbylalprotractedlsilence.lBylrealizinglthatlitlislthelsamelfactorslthatlshiftlthelcurvelwhenl the
ylchange,lstudentsldeveloplalmorelsolidlunderstanding.lTheltextlmakeslthislpointlwelllinlEquationsl2.2l an
dl2.3.
Thelintroductionlofldemandlcurveslandlequationslislalgoodlopportunityltolreviewlthelbasiclgeometriclconcepts
l oflslopelandlintercept.lThisldoeslnotltakelmuchltime,laslmostlstudentslcanlrecognizelslopelandlinterceptlo
fl alwrittenlequation,lbutltherelislsometimeslalsurprisingllackloflconnectionlbetweenlwhatlappearslinlanlequatio
nl andlthelresultinglgraph.lDrawlaldemandlcurvelandltelllthelclasslthatlthelslopeloflthislcurvelis
–
2.lThenlasklthelstudentslwhatlwilllhappenlinlthelgraphliflthelslopelchangesltol−l4.lAlthoughlitlisllikelyl
thatlseveral,lperhapslmostlstudentslwilllknowlimmediately,lsomelwilllnot.
Ratherlthanlreferringltolthelslopelincreasinglorldecreasing,lIltendltolreferltolitlaslbecominglsteeperlorl flatt
er,landlthuslthislwaylIlcanltalklaboutlthelshiftlinlsupplylandldemandlcurvelslopeslthelsamelwayl(anl incre
aselinlslopelwouldlcauseltheldemandlcurveltolbecomelflatterlandlthelsupplylcurveltolbecomelsteeper,
©l2018lPearsonlEducation,lInc.
about:blank 2/72
,6/23/23,l6:06lAM Microeconomicsl8thleditionlperlofflsolutionslmanual
Chapterl2l SupplylandlDemandl l 7
whichlcanlbelconfusinglforlstudents).l Iltryltoluselthelsimplelalgebralandlgeometrylinltheselearlylchapters
l tolhelpl meltol gaugel whatlportionloflthelclasslisllikelyl tolstrugglel whenlthel materiall getsltougher.
Assigninglsomeloflthelquantitativelproblemslatlthelendloflthelchapterlandlcollectingltheml(evenliflyouldol
notlintendltolcollectlhomeworklthroughoutlthelterm)lislanotherlgoodldiagnostic.lAlternativelyluselfivel minut
eslofllectureltimeltolasklstudentsltolanswerltwolorlthreelbasiclquantitativelquestionslandlcollectltheirl respo
nses.lAssurelthelstudentslthatltheirlanswerslwilllnotlbelgradedlandlwilllsimplylbelusedltolgaugel comprehe
nsion.lThislwilllallowlyoultoladjustlyourlnextllectureliflnecessary,landlbylwalkinglaroundlwhilel studentsla
relworking,lyoulcanlanswerlanylbasiclquestionsltheylmightlhave.
Itlislalsolvaluableltoldiscusslthelinverseldemandlcurvelandlthelprocessloflinversion.lIlusuallylmotivatelthisl
reviewlbylnotinglthatlthislprocesslwilllbelneededllaterlwhenlformulatinglaltotallrevenuelequationlfromlal d
emandlequation.lIlcombinelthislwithltheldiscussionloflthelproblemloflthelreversedlaxes.lAtlthislpoint,lyoul
canlreferlbackltolthelgraphlandlshowlhowltolfindlthelinterceptlandlslopelfromlEquationl2.3
Iltryltolkeepltheldiscussionloflsupplylparallelltolthatlofldemand.lForlfactorslthatlcanlshiftlthelentirelsupply
l curve,lnotelthatltheylcanlalllbellumpedltogetherlunderlthelbroaderlheadingloflcosts,lgovernmentlruleslan
dl regulations,landlotherlvariablesl(aslisldonelinltheltext).lTheltextlnoteslthatltherelislnol“LawloflSupply,”
l andl mostlstudentslhavellearnedlthisl inltheirlprincipleslcourse.lBelaware,lhowever,lthatlsomelprinciplesl
instructorslreferltolthelupwardlslopeloflsupplylcurveslinlthelshortlrunlaslthel“LawloflSupply.”lAdoptingla
l uniformltaxonomylandlvocabularylreduceslconfusion.lThislincludesluniformityl withltheltextlwithlrespec
tl tolsymbolslandlupper-lversusllower-casellabeling.
Whenlcombininglsupplylandldemandlinltheldiscussionloflequilibrium,lpresslthelstudentslforlalusablel defi
nitionloflthelterm.lYoulwillllikelylreceivelthelsuggestionlofl“wherelsupplylequalsldemand.”lThoughl incor
rect,lthisldefinitionlislusefullinlthelintroductionloflpricelfloorslandlceilingslwherelthelquantitylsuppliedl doe
slnotlequalldemandedlatlthel equilibriumlquantity.lAnlimportantlpointlregardinglequilibriumlsolutionsl ofls
upply-and-demandlproblemslislthatltheylareltypicallylstablelandlself-
correcting.lTolillustratelthislpoint,l uselexamplesloflcommonlylpurchasedlitemslsuchlasldiscountedlclothin
glwherelreducedlpriceslreflectl excesslsupply.
Nowlthatlstudentslhavelanlidealoflwhatlalmarketllooksllikelinlequilibrium,lIlmightlasklforlexampleslofl
marketslthatlarelnotlinlequilibrium.lThislleadslinltoltheldiscussionloflgovernmentlinterventionslandlhow
l theyldistortlthelmarket.lThislislalsolalgoodlplaceltoluselalnewslarticleltolshowlstudentslhowltoluselgraph
sl tolexplainleffectslmentionedlinlthelarticle.
Whenldiscussinglfloorslandlceilings,lIlstressltheldefinitionslusinglsimplelgraphslaslillustrations.lAlthough
l itlseemslcounterintuitiveltolsomelstudentslthatlanleffectivelfloorl mustlbelabovelthel equilibriumlpriceland
l anleffectivelceilingl mustlbelbelow,lsuggestlthatltheyluselthislaslalmnemonicldevice.lInlthislsection,lIltrylt
ol engagelthelclasslinlaldiscussionloflunintendedlorlsecondaryleffectsloflgovernmentlintervention.lThisliss
uel deserveslsignificantlclassldiscussionltime.lMostlstudentslhavelnotlthoughtlmuchlaboutlthelconsequence
slofl ceilingslandlfloorslbeyondlthelsimplelpriceleffects.lTheltextlhaslalgoodldescriptionloflthelunintended
l effectsloflpricelcontrolslinlZimbabwe.l Aldiscussionl onlthel initiallreactionltolthelpricelcontrols,landlthenl
thelactualleffectloflthelcontrols,lwouldlleadlstudentsltolrealizelthelimportancelofllookinglbeyondlthelinitial
l effectlandlusingl economicl modelsltolpredictl outcomes.
Anotherlgoodlexamplelforldiscussinglsecondaryleffectslislrentlcontrol.lOnlthelsupplylside,llandlords’l inc
entivesltolprovidelefficientllevelsloflupkeeplandlsafetylmeasureslinlrent-
controlledlbuildingslarel distorted.lOnltheldemandlside,ltimelspentlsearchinglandlundesiredldoubling-
uplreducelconsumerl satisfaction.lSecondaryleffectsloflfloorslarelalsolworthlnoting.lIlrecommendlthatlyo
uldiscussltheltext’sl exampleloflthelpossiblelnegativeleffectsloflminimumlwages.lAgain,lstudentslarellikel
yltolviewlminimuml wageslaslstrictlylalbenefitltolworkerslbecauseltheylhavelnotlconsideredlthatljobllossl
willlmeanlthatlsomel workerslarelharmedlratherlthanlhelpedlbylthelestablishmentloflminimumslorlincreas
eslinltheirllevel.
©l2018lPearsonlEducation,lInc.
about:blank 3/72
, 6/23/23,l6:06lAM Microeconomicsl8thleditionlperlofflsolutionslmanual
8l l Perloffl•lMicroeconomics,lEighthlEdition
Theselpolicylissueslprovidelanlopportunityltoluselcurrentlaffairslinlclass.l Usinglanlarticlelfromlal newspa
perlorlonlinelsource,lIloftenlbreakldownlthelpredictionslinlthelarticlelandluseltheltheoryllearnedlinl classltol
determineltheirlveracity.
Inlthelsectionlonlwhenltoluselthelsupply-and-
demandlmodel,lbelsureltoldefinelandldiscussltransactionl costs.lMostlstudentslwilllnotlbelfamiliarlwithlth
isltermlfromlprinciples,landlitlhaslimportantlimplicationsl onlthelfunctioningloflthinlmarketslandlmarketsl
whereltherelislsubstantialluncertainty.
Atlthelendloflthelchapter,lyoulcanlreturnltoltheldiscussionloflgeneticallylmodifiedlfoodsl(orlanotherl approp
riatelexample)landluselthelsupplylandldemandlmodelltolanalyzeltheleffectsloflentry.
■ DiscussionlQuestions
1. CanlyoulthinkloflanylreasonslwhylthelLawloflDemandlmightlnotlhold?
2. Wouldlyoulexpectlmostlsupplylcurvesltolhavelanlupwardlslope?lWhylorlwhylnot?
3. Whatlarelsomelexamplesloflmarketslthatlarelcompetitive?
4. Inlwhichlmarketslthatlwouldlotherwiselbelcompetitivelwouldlyoulexpectltransactionlcostsltolbe
l verylhigh?
5. Canlyoulthinkloflsituationslwherelthelgovernmentlwouldlwantltoltakelactionslthatlcauselshortages?
6. Inlwhatlmarketslandlsituationslwouldlyoulexpectlthatlthelquantityldemandedlwouldlnotlequal
l thel quantitylsupplied?
7. Canlyoulthinkloflanlexamplelwherelalgoodlislsoldlbelowlequilibriumlpricelwithoutlgovernment
l interventionlcausingl excessldemand?lWhichlpropertyl oflperfectlcompetitionlislviolated?
■ AdditionallQuestionslandlProblems
1. Supposelyoularelplanningltolconductlalstudyloflthelrunninglshoelmarket.lListlthelfactorslthatlyou
l believel wouldlcauselchangesl inlthel demandlforlrunninglshoes.lInl eachlcase,lnotel whetherlthel r
elationshiplwouldlbelpositivel(direct)lorlnegativel(inverse).lAlsollistlthelfactorslthatlyoulbelievel
wouldlaffectlthelsupply,lagainlnotinglthelnatureloflthelrelationship.
2. Inleachlcaselbelow,lidentifyltheleffectlonltheldemandlcurvelforlsteakl(alnormallgood).
a. Anlincreaselinlthelpricelofllamb
b. Aldecreaselinlthelpopulation
c. Anlincreaselinlconsumerlincome
d. Aldecreaselinlthelpriceloflsteaklsauce
e. Anlincreaselinladvertisinglbylchickenlproducers
3. Inleachlcaselbelow,lidentifyltheleffectlonlthelsupplylcurvelforlcoal.
a. Theldevelopmentloflalnew,llowerlcostlminingltechnique
b. Anlincreaselinlwageslpaidltolcoallminers
c. Thelimpositionloflal$2lperltonltaxlonlcoal
d. Algovernmentlbanlonlalllimportsloflcoal
e. Alnewlgovernmentlregulationlrequiringlairlpurifierslinlalllworklareas
©l2018lPearsonlEducation,lInc.
about:blank 4/72
Microeconomicsl8thlEditionlPerlofflSolutionslManual
Full Download:l http://testbanklive.com/download/microeconomics-8th-edition-perloff-solutions-manual/
Chapterl2
SupplylandlDemand
ChapterlOutline
Challenge:l QuantitieslandlPricesloflGeneticallylModifiedlFoods
Demand
ThelDemandlCurve
EffectloflPriceslonlthelQuantitylDemandedl Eff
ectloflOtherlFactorslonlDemandl Application:l
CalorielCounting
ThelDemandlFunction
SolvedlProbleml2.1
SumminglDemandlCurves
Application:lAggregatinglCornlDemandlCurves
Supply
ThelSupplylCurve
EffectloflPricelonlSupply
EffectloflOtherlVariableslonlSupplyl T
helSupplylFunction
SumminglSupplylCurves
HowlGovernmentlImportlPolicieslAffectlSupplylCurves
SolvedlProbleml2.2
MarketlEquilibrium
UsinglalGraphltolDeterminelthelEquilibriuml
UsinglMathltolDeterminelthelEquilibriuml F
orceslThatlDrivelalMarketltolEquilibrium
ShockinglthelEquilibrium
EffectsloflalShockltolthelSupplylCurve
SolvedlProbleml2.3
EffectsloflalShockltolthelDemandlCurve
©l2018lPearsonlEducation,lInc.
Fullldownloadlalllchapterslinstantlylpleasel goltolSolutionslManual,lTestlBankl site:ltestbanklive.com
about:blank 1/72
,6/23/23,l6:06lAM Microeconomicsl8thleditionlperlofflsolutionslmanual
6 Perloffl•lMicroeconomics,lEighthlEdition
2.5 EffectsloflGovernmentlInterventions
l PolicieslThatlShiftlSupplylCurve
s
LicensinglLaws
Application:lOccupationallLicensing
l Quotas
SolvedlProbleml2.4
PolicieslThatlCauselthelQuantitylDemandedltolDifferlfromlthelQuantitylSuppliedl Pri
celCeilings
Application:l VenezuelanlPricelCeilingslandlShortagesl Pri
celFloors
SolvedlProbleml2.5
WhylthelQuantitylSuppliedlNeedlNotlEquallthelQuantitylDemanded
2.6 WhenltolUselthelSupply-and-DemandlModel
■ TeachinglTips
Thislchapterlreviewslbasiclsupply-and-
demandlconceptslfromlthelprinciplesl level.lYourlinteractionslwithl thelclasslfromlthelfirstlsessionlorltwols
houldlgivelyoulalgoodlindicationloflhowlmuchlclassltimeltolspendl onlit.lIflitlhaslbeenlsomeltimelsincelth
eirlprincipleslcourse,lstudentslmaylneedlfairlylconsistentlpromptingl tolrecalllthelbasiclsupply-and-
demandlmodel.lForlexample,lmanylwilllrememberlthatltherelislalLawlofl Demandlbutlwilllnotlrememberlt
hellawlitself.lEncouragelstudentslinlthelstrongestltermsltolreadlthelchapterl carefully.lItlislwelllworthlthelti
melspentlatlthislstageltolmakelsureleveryonelhaslsolidlrecognitionloflthesel basicltoolslandlconcepts.
Algoodlwayltolmotivatelthelchapterlislbylbeginninglwithlthelgeneticallylmodifiedlfoodlexamplelfoundlinl
thelChallenge.lTryltolkeeplthelconversationlfocusedlonlpossibleleffectsloflentrylorloflthelban.lLetlstudents
l brainstormlaboutlwhichlpartiesl mightlbelinlfavorloflalbanlandl whol wouldlbel opposedlandlwhy.
Whenlreviewingldemand,lbelsurelstudentslarelclearlonltheldifferencelbetweenl movementlalonglthelcurvel
andlalshiftloflthelentirelcurve.lTwolpointslshouldlbelhelpful.lFirst,lnoteltolthemlthatlbothlinlEquationl2.1l
andlonlthelgraphlinlFigurel2.1,lpricelislthelonlylindependentlvariablelpresent.lThus,lonlylpricelcanlcausela
l movementlalonglthel curve.lSecond,lunderscorelthelrolel oflotherlvariables.lAfterlcompilinglallistloflthel f
actorslthatlcanlshiftltheldemandlcurvel(onceltheylgetlstarted,lthelclasslaslalgrouplshouldlbelableltolprovidel y
oulwithlthisllist),lIlasklwhatlfactorslarelheldlconstantlalonglalsingleldemandlcurve.lSurprisingly,lthislquestionl i
sloftenlgreetedlbylalprotractedlsilence.lBylrealizinglthatlitlislthelsamelfactorslthatlshiftlthelcurvelwhenl the
ylchange,lstudentsldeveloplalmorelsolidlunderstanding.lTheltextlmakeslthislpointlwelllinlEquationsl2.2l an
dl2.3.
Thelintroductionlofldemandlcurveslandlequationslislalgoodlopportunityltolreviewlthelbasiclgeometriclconcepts
l oflslopelandlintercept.lThisldoeslnotltakelmuchltime,laslmostlstudentslcanlrecognizelslopelandlinterceptlo
fl alwrittenlequation,lbutltherelislsometimeslalsurprisingllackloflconnectionlbetweenlwhatlappearslinlanlequatio
nl andlthelresultinglgraph.lDrawlaldemandlcurvelandltelllthelclasslthatlthelslopeloflthislcurvelis
–
2.lThenlasklthelstudentslwhatlwilllhappenlinlthelgraphliflthelslopelchangesltol−l4.lAlthoughlitlisllikelyl
thatlseveral,lperhapslmostlstudentslwilllknowlimmediately,lsomelwilllnot.
Ratherlthanlreferringltolthelslopelincreasinglorldecreasing,lIltendltolreferltolitlaslbecominglsteeperlorl flatt
er,landlthuslthislwaylIlcanltalklaboutlthelshiftlinlsupplylandldemandlcurvelslopeslthelsamelwayl(anl incre
aselinlslopelwouldlcauseltheldemandlcurveltolbecomelflatterlandlthelsupplylcurveltolbecomelsteeper,
©l2018lPearsonlEducation,lInc.
about:blank 2/72
,6/23/23,l6:06lAM Microeconomicsl8thleditionlperlofflsolutionslmanual
Chapterl2l SupplylandlDemandl l 7
whichlcanlbelconfusinglforlstudents).l Iltryltoluselthelsimplelalgebralandlgeometrylinltheselearlylchapters
l tolhelpl meltol gaugel whatlportionloflthelclasslisllikelyl tolstrugglel whenlthel materiall getsltougher.
Assigninglsomeloflthelquantitativelproblemslatlthelendloflthelchapterlandlcollectingltheml(evenliflyouldol
notlintendltolcollectlhomeworklthroughoutlthelterm)lislanotherlgoodldiagnostic.lAlternativelyluselfivel minut
eslofllectureltimeltolasklstudentsltolanswerltwolorlthreelbasiclquantitativelquestionslandlcollectltheirl respo
nses.lAssurelthelstudentslthatltheirlanswerslwilllnotlbelgradedlandlwilllsimplylbelusedltolgaugel comprehe
nsion.lThislwilllallowlyoultoladjustlyourlnextllectureliflnecessary,landlbylwalkinglaroundlwhilel studentsla
relworking,lyoulcanlanswerlanylbasiclquestionsltheylmightlhave.
Itlislalsolvaluableltoldiscusslthelinverseldemandlcurvelandlthelprocessloflinversion.lIlusuallylmotivatelthisl
reviewlbylnotinglthatlthislprocesslwilllbelneededllaterlwhenlformulatinglaltotallrevenuelequationlfromlal d
emandlequation.lIlcombinelthislwithltheldiscussionloflthelproblemloflthelreversedlaxes.lAtlthislpoint,lyoul
canlreferlbackltolthelgraphlandlshowlhowltolfindlthelinterceptlandlslopelfromlEquationl2.3
Iltryltolkeepltheldiscussionloflsupplylparallelltolthatlofldemand.lForlfactorslthatlcanlshiftlthelentirelsupply
l curve,lnotelthatltheylcanlalllbellumpedltogetherlunderlthelbroaderlheadingloflcosts,lgovernmentlruleslan
dl regulations,landlotherlvariablesl(aslisldonelinltheltext).lTheltextlnoteslthatltherelislnol“LawloflSupply,”
l andl mostlstudentslhavellearnedlthisl inltheirlprincipleslcourse.lBelaware,lhowever,lthatlsomelprinciplesl
instructorslreferltolthelupwardlslopeloflsupplylcurveslinlthelshortlrunlaslthel“LawloflSupply.”lAdoptingla
l uniformltaxonomylandlvocabularylreduceslconfusion.lThislincludesluniformityl withltheltextlwithlrespec
tl tolsymbolslandlupper-lversusllower-casellabeling.
Whenlcombininglsupplylandldemandlinltheldiscussionloflequilibrium,lpresslthelstudentslforlalusablel defi
nitionloflthelterm.lYoulwillllikelylreceivelthelsuggestionlofl“wherelsupplylequalsldemand.”lThoughl incor
rect,lthisldefinitionlislusefullinlthelintroductionloflpricelfloorslandlceilingslwherelthelquantitylsuppliedl doe
slnotlequalldemandedlatlthel equilibriumlquantity.lAnlimportantlpointlregardinglequilibriumlsolutionsl ofls
upply-and-demandlproblemslislthatltheylareltypicallylstablelandlself-
correcting.lTolillustratelthislpoint,l uselexamplesloflcommonlylpurchasedlitemslsuchlasldiscountedlclothin
glwherelreducedlpriceslreflectl excesslsupply.
Nowlthatlstudentslhavelanlidealoflwhatlalmarketllooksllikelinlequilibrium,lIlmightlasklforlexampleslofl
marketslthatlarelnotlinlequilibrium.lThislleadslinltoltheldiscussionloflgovernmentlinterventionslandlhow
l theyldistortlthelmarket.lThislislalsolalgoodlplaceltoluselalnewslarticleltolshowlstudentslhowltoluselgraph
sl tolexplainleffectslmentionedlinlthelarticle.
Whenldiscussinglfloorslandlceilings,lIlstressltheldefinitionslusinglsimplelgraphslaslillustrations.lAlthough
l itlseemslcounterintuitiveltolsomelstudentslthatlanleffectivelfloorl mustlbelabovelthel equilibriumlpriceland
l anleffectivelceilingl mustlbelbelow,lsuggestlthatltheyluselthislaslalmnemonicldevice.lInlthislsection,lIltrylt
ol engagelthelclasslinlaldiscussionloflunintendedlorlsecondaryleffectsloflgovernmentlintervention.lThisliss
uel deserveslsignificantlclassldiscussionltime.lMostlstudentslhavelnotlthoughtlmuchlaboutlthelconsequence
slofl ceilingslandlfloorslbeyondlthelsimplelpriceleffects.lTheltextlhaslalgoodldescriptionloflthelunintended
l effectsloflpricelcontrolslinlZimbabwe.l Aldiscussionl onlthel initiallreactionltolthelpricelcontrols,landlthenl
thelactualleffectloflthelcontrols,lwouldlleadlstudentsltolrealizelthelimportancelofllookinglbeyondlthelinitial
l effectlandlusingl economicl modelsltolpredictl outcomes.
Anotherlgoodlexamplelforldiscussinglsecondaryleffectslislrentlcontrol.lOnlthelsupplylside,llandlords’l inc
entivesltolprovidelefficientllevelsloflupkeeplandlsafetylmeasureslinlrent-
controlledlbuildingslarel distorted.lOnltheldemandlside,ltimelspentlsearchinglandlundesiredldoubling-
uplreducelconsumerl satisfaction.lSecondaryleffectsloflfloorslarelalsolworthlnoting.lIlrecommendlthatlyo
uldiscussltheltext’sl exampleloflthelpossiblelnegativeleffectsloflminimumlwages.lAgain,lstudentslarellikel
yltolviewlminimuml wageslaslstrictlylalbenefitltolworkerslbecauseltheylhavelnotlconsideredlthatljobllossl
willlmeanlthatlsomel workerslarelharmedlratherlthanlhelpedlbylthelestablishmentloflminimumslorlincreas
eslinltheirllevel.
©l2018lPearsonlEducation,lInc.
about:blank 3/72
, 6/23/23,l6:06lAM Microeconomicsl8thleditionlperlofflsolutionslmanual
8l l Perloffl•lMicroeconomics,lEighthlEdition
Theselpolicylissueslprovidelanlopportunityltoluselcurrentlaffairslinlclass.l Usinglanlarticlelfromlal newspa
perlorlonlinelsource,lIloftenlbreakldownlthelpredictionslinlthelarticlelandluseltheltheoryllearnedlinl classltol
determineltheirlveracity.
Inlthelsectionlonlwhenltoluselthelsupply-and-
demandlmodel,lbelsureltoldefinelandldiscussltransactionl costs.lMostlstudentslwilllnotlbelfamiliarlwithlth
isltermlfromlprinciples,landlitlhaslimportantlimplicationsl onlthelfunctioningloflthinlmarketslandlmarketsl
whereltherelislsubstantialluncertainty.
Atlthelendloflthelchapter,lyoulcanlreturnltoltheldiscussionloflgeneticallylmodifiedlfoodsl(orlanotherl approp
riatelexample)landluselthelsupplylandldemandlmodelltolanalyzeltheleffectsloflentry.
■ DiscussionlQuestions
1. CanlyoulthinkloflanylreasonslwhylthelLawloflDemandlmightlnotlhold?
2. Wouldlyoulexpectlmostlsupplylcurvesltolhavelanlupwardlslope?lWhylorlwhylnot?
3. Whatlarelsomelexamplesloflmarketslthatlarelcompetitive?
4. Inlwhichlmarketslthatlwouldlotherwiselbelcompetitivelwouldlyoulexpectltransactionlcostsltolbe
l verylhigh?
5. Canlyoulthinkloflsituationslwherelthelgovernmentlwouldlwantltoltakelactionslthatlcauselshortages?
6. Inlwhatlmarketslandlsituationslwouldlyoulexpectlthatlthelquantityldemandedlwouldlnotlequal
l thel quantitylsupplied?
7. Canlyoulthinkloflanlexamplelwherelalgoodlislsoldlbelowlequilibriumlpricelwithoutlgovernment
l interventionlcausingl excessldemand?lWhichlpropertyl oflperfectlcompetitionlislviolated?
■ AdditionallQuestionslandlProblems
1. Supposelyoularelplanningltolconductlalstudyloflthelrunninglshoelmarket.lListlthelfactorslthatlyou
l believel wouldlcauselchangesl inlthel demandlforlrunninglshoes.lInl eachlcase,lnotel whetherlthel r
elationshiplwouldlbelpositivel(direct)lorlnegativel(inverse).lAlsollistlthelfactorslthatlyoulbelievel
wouldlaffectlthelsupply,lagainlnotinglthelnatureloflthelrelationship.
2. Inleachlcaselbelow,lidentifyltheleffectlonltheldemandlcurvelforlsteakl(alnormallgood).
a. Anlincreaselinlthelpricelofllamb
b. Aldecreaselinlthelpopulation
c. Anlincreaselinlconsumerlincome
d. Aldecreaselinlthelpriceloflsteaklsauce
e. Anlincreaselinladvertisinglbylchickenlproducers
3. Inleachlcaselbelow,lidentifyltheleffectlonlthelsupplylcurvelforlcoal.
a. Theldevelopmentloflalnew,llowerlcostlminingltechnique
b. Anlincreaselinlwageslpaidltolcoallminers
c. Thelimpositionloflal$2lperltonltaxlonlcoal
d. Algovernmentlbanlonlalllimportsloflcoal
e. Alnewlgovernmentlregulationlrequiringlairlpurifierslinlalllworklareas
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