Business, 25.10.2020 04:30, JOHNDoe3443
Consider (again!) a 2 period model (assumptions: P=8- 0.4Q, MEC=2, r=10%, reserves = 20 units, similar to the example discussed in the lectures) where the government sets a price ceiling of Pc=4. We found that the efficient price in period 2 is 4.095. This means that the price control will be binding/constraining in the second time period, that is you know that P2 * =4.
a. Derive the quantity allocation across time periods (Q1
*, Q2*) given the price control
b. Derive the resource price in period 1 that yields this allocation (P1*)
c. What is the Marginal User Cost in both time periods (MUC1*, MUC2*)
d. Compute the present total surplus with price control and compare to the surplus
without it
e. Explain the intuition behind this result.
Answers: 2
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Consider (again!) a 2 period model (assumptions: P=8- 0.4Q, MEC=2, r=10%, reserves = 20 units, simil...
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