Macroeconomics
13th Edition
ISBN: 9781337617390
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 4, Problem 5QP
To determine
The supply curve and
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Illustrate on a supply and demand diagram how price ceilings may distort the market outcome, and specify what secondary effects price ceilings can create.
A government decides to set a price ceiling on bread so that bread is affordable to the poor. The conditions of demand and supply are given in the table below. What is the equilibrium price before the price ceiling? What will the excess supply or the shortage be if the price ceiling is set at $2.40?
Price
Qd
Qs
$1.60
9,000
5,000
$2.00
8,500
5,500
$2.40
8,000
6,400
$2.80
7,500
7,500
$3.20
7,000
9,000
$3.60
6,500
11,000
$4.00
6,000
15,000
A. $2.80; 1,600 shortage
B. $2.80; 1,600 excess supply
C. $2.40; 1,600 shortage
If people can't afford the equilibrium price for a good, would it be a good idea for the government to force the producer to produce it and give it to the poor people? Why or why not?
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Similar questions
- What are the side effects of price ceilings? How might price ceilings affect the supply of goods and services that are subject to the price ceilings? Do you agree or disagree with price ceilings? Why or why not? Do you agree or disagree with laws against price gouging? Why or why not?arrow_forwardWhat can cause a price ceiling to become nonbinding?arrow_forwardHow can a price ceiling make consumers better off? Under what conditions might it make them worse off?arrow_forward
- A low-income country decides to set a price ceiling on bread so it can make sure that bread is affordable to the poor. The conditions of demand and supply are given in Exhibit 10. What are the equilibrium price and equilibrium quantity before the price ceiling? What will the excess demand or the shortage if the price ceiling is set at $2.40? At $2.00? At $3.60? Price Qd Qs $1.60 9,000 5,000 $2.00 8,500 5,500 $2.40 8,000 6,400 $2.80 7,500 7,500 $3.20 7,000 9,000 $3.60 6,500 11,000 $4.00 6,000 15,000 Exhibit 10. Demand and Supply of Bread in Low-Income Countryarrow_forwardA surge in bread prices causes the government to worry that many poor individuals will no longer be able to afford a basic meal. To combat the surge, the government decides to set an effective (or binding) price ceiling. Draw the market for bread below with the equilibrium price, price ceiling, and label the surplus or shortage. (Make sure to label each axis on the graph!) List three possible unintended side effects of this policy. Be specific.arrow_forwardWhy do most economists oppose price ceilings and price floor? What are their negative consequences?arrow_forward
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