Answered: Condering the following points listed…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter6: Supply, Demand And Government Policies

Section: Chapter Questions

Problem 10PA

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Condering the following points listed below. Explain whether the price ceiling is a good option for the masks. Giving examples

1. It leads to a lower supply. If firms get a lower price, there may be less incentive to supply the good, and the number of masks available in the market declines.

2. A maximum price will also lead to a shortage – where demand will exceed supply. In a market where there is already a shortage due to demand exceeding supply, a further shortage will worsen the situation.

3. Black market - A maximum price can lead to the emergence of black markets as people try to overcome the shortage of masks and end up paying well above the market price.

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