Question

1. The graph below represents the market for electric cars. If a price floor is set at $92,000, calculate the surplus of cars that will result.

Price $21,000 $37,000 $55, 00 $75,000 $92,000 Quantity Supplied 1,000 3,000 5, 000 8,000 12,000 Quantity Demanded 9,000 6,750 5,000 4,000 2,000

____ # of electric cars, please provide your explanation so that I can apply it to future problems.

2.) Government intervention of setting price controls impacts the __________________. As a result, when a price floor is set, a very likely outcome is a ______________ in the market.

market equilibrium; surplus

market equilibrium; shortage

supply schedule; surplus

demand schedule; shortage

Answer 1

Ans.1- 10,000

If P =92000, Qs = 12000 and Qd = 2000. Since quantity supplied> quantity demanded so there is surplus of 12000-2000 = 10000 cars.

Ans.2- market equilibrium, surplus

When government implements a price control like price ceiling or price floor then market equilibrium gets affected due to change in the price. When price floor is set at a higher price as compared to equilibrium price,then quantity supplied exceeds quantity demanded and hence there is surplus.