<p> Lecture 2 Practice Questions</p><p>From Frank text: In-chapter exercises 2.1-2.4, 4.5-4.6.</p><p>Additional questions:</p><p>1. The supply and demand for vodka are given by the following equations:</p><p>P = 100 - 0.15Qd P = 20 + 0.05Qs</p><p>(a) What are the market equilibrium price and quantity for vodka? (b) Suppose the government imposes a price ceiling of $30 on vodka. What outcome do you predict, using the standard supply-and-demand model? Use specific numbers in your answer. (c) Calculate the consumer surplus, producer surplus, transfer, and dead-weight loss for part b. (d) What are some other ways that vodka producers might react to the price ceiling, other than just changing quantity? [Hint: Think about what happens in rent- controlled markets, aside from simple housing shortages.]</p><p>2. The supply and demand for clove cigarettes are given by the following equations:</p><p>P = 10 - 0.001Qd P = 2 + 0.004Qs</p><p>(a) What are the market equilibrium price and quantity for clove cigarettes? (b) Now suppose the demand curve changes to P = 12 - .001Qd. What are the new market equilibrium price and quantity? (c) State at least three things that could cause the shift described in part b. </p><p>3. Discuss the efficiency of rent control, using both the Pareto criterion and the Kaldor- Hicks criterion. Be sure to identify the different groups of "winners" and "losers" from the implementation of rent control. </p><p>4. The demand for light beer is given by P = 8 - 0.004Qd. Find the price elasticity of demand when P = 6. Then find the price elasticity of demand when P = 3. Then find the price where the demand curve is unit elastic. </p>