Answered: Thousands of Bushels Thousands of…

Thousands of Bushels Thousands of Demanded Price per Bushel Bushels Supplled 85 $3.40 72 80 3.70 73 75 4.00 75 70 4.30 77 65 4.60 79 60 4.90 81

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter20: The Problem Of Adverse Selection Moral Hazard

Section: Chapter Questions

Problem 3MC

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Question

Suppose the total demand for wheat and the total supply of wheat per month in the Kansas City grain market are as shown. Suppose that the government establishes a price ceiling of $3.70 for wheat. What might prompt the government to establish this price ceiling? Explain carefully the main effects. Demonstrate your answer graphically. Next, suppose that the government establishes a price floor of $4.60 for wheat. What will be the main effects of this price floor? Demonstrate your answer graphically.

Thousands of
Bushels
Thousands of
Demanded
Price per Bushel
Bushels Supplled
85
$3.40
72
80
3.70
73
75
4.00
75
70
4.30
77
65
4.60
79
60
4.90
81

Video Definition Video Definition Government regulation setting a maximum price a business may charge for a given good or service. A price ceiling itself does not cause demand or supply to change. It is simply a mechanism used to set a price that can be legally charged in the market. Price ceilings are often implemented during times of crisis to avoid price gouging.

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