demand and supply analysis & application

Question 1

price ceiling definition

Answer 1

highest permissible price that the producer can legally charge. price is not allowed to rise above the level set but is allowed to fall below it

Question 2

why price ceiling is implemented

Answer 2

if a market-determined price of is group is ‘too high’
protect the consumers of the good
it must be set below equilibrium price to be effective
keeping prices of basic necessities and raw materials low
achieve better income distribution

Question 3

explanation of price ceiling graph

Answer 3

-government fixes the price in the market below the existing market equilibrium price (0Pe)
-price is not allowed to rise above 0Pmax
-leads to a shortage of QsQd as the quantity demanded exceeds the quantity supplied

Question 4

effects of price ceilings

Answer 4

consumers who are unable to buy food at 0Pmax but are willing and able to pay at a higher price above 0Pmax are worse off
-emergence of black market to fulfil the needs of people who do not get the good

Question 5

price floor definition

Answer 5

the lowest permissible price that the producer can legally charge

Question 6

price control

Question 7

price control

Question 8

price control

Question 9

subsidy

Answer 9

-cause cost of production to fall and supply of a good to rise
-supply curve of a good shift to the right from S0 to S1
- more incentive for producers
-poorer households can afford