problem 1:

a) Define the term maximum price legislation.

b) Describe the idea by using an appropriate diagram.

c) Trace out the welfare effects of such exercise.

problem 2:

a) Describe the idea of minimum price legislation.

b) Describe the idea by considering the labor market.

c) Compute the welfare effects of this exercise.

problem 3:

a) If a specific tax is imposed then illustrate that for the buyer the price increases, for the seller the price drops.

b) Let consider a competitive market for wheat. Determine the impact of a price support program (price floor) on the quantity demanded and supplied. Do you think that the price support is responsible for over-production?

c) In the similar market if the government decides to follow a price contact policy, then what would be the impact on the quantity of wheat produced and the related welfare impacts?

problem 4:

a) Examine the economic effects of tariff.

b) Describe the conditions beneath which quota is equivalent to the tariff.

problem 5:

a) Differentiate between the market equilibrium and changes in the market equilibrium.

b) Under what conditions will change in market equilibrium lead to raise in both price and quantity?