Discussion:
1. In the absence of any price ceiling or price floor, what will the equilibrium price be in this market?
2. In the absence of a price ceiling or price floor, what is the equilibrium quantity of books that trade hands? (Follow the usual convention of assuming that people who are indifferent about trading at the equilibrium price go ahead and trade.)
3. In one version of the experiment, the professor plans to put a ceiling of $11 on prices. That is, no one will be permitted to submit a bid or an asking price greater than $11. Will this be a binding price ceiling? That is, will the price ceiling affect the prices that buyers and sellers agree to when they trade?
4.The professor changes her mind and imposes a price floor of $11 on prices. No one is permitted to submit a bid or an asking price lower than $11. Will this be a binding price floor? That is, will the price floor affect the prices that buyers and sellers agree to when they trade?
5.Suppose the professor imposes a price floor of $4. Select the best answer.
a This will cause a surplus.
b This will cause neither a surplus nor a shortage.
c This will cause a shortage.
6. Suppose the professor imposes a price ceiling of $4. Select the best answer.
A. This will cause a shortage.
B. This will cause neither a surplus nor a shortage.
C. This will cause a surplus.
7. Suppose there is no price ceiling or price floor. Together, how much cash would the sellers in this experiment receive from selling their books? That is, what is the equilibrium price times the equilibrium quantity? (Assume, as always, that the people who are indifferent go ahead and trade.)
8. Now suppose that the professor imposes a price floor of $15 per book. Sellers are pleased because they think that they will be able to get more money this way. Together, how much cash would the sellers receive from selling their books now? (Assume, as always, that people who are indifferent go ahead and trade.