In the schedule below, describe the situation at the price of$10. What will occu
ID: 1231575 • Letter: I
Question
In the schedule below, describe the situation at the price of$10. What will occur? Describe the situation at a price of $2 whatwill occur.Suppose the government imposed a minimum price of $7 in theschedule, what would occur? illustrate.
Indicate what the price would have to be to represent an effectiveprice ceiling. Point out the surplus or shortage that results.Illustrate a price floor and provide an example of price floor.
Price QuantityDD Quantity SS
$1 500 100
$2 400 120
$3 350 150
$4 320 200
$5 300 300
$6 275 410
$7 260 500
$8 230 650
$9 200 800
$10 150 975
Explanation / Answer
Theequilibrium price is the price where supply and demand meets. Theequilibrium price on this schedule is at $5, and the quantity is300.
Thesituation at a price of $10 is a surplus of 975 - 150 = 820. Atthis price the consumer are only willing to consume150 of thecommodity leaving a surplus.
Areduction in price will increase the quantity demanded therebydecreasing the quantity supplied.
At a priceof $2 there is a shortage of 400 - 120 = 280, here the demand isgreater that supply.
When thegovernment impose a a minimum price of $7 in the exercise, there isa price floor occuring; at this the price cannot go below thegovernment imposed price.
Theoriginal equilibrium price was $5, now with the government imposeprice it has increased to $7 giving a surplus of 500 - 260 = 240.The price floor interferes with the function of the market, the
governmentimposing of $7 price means the price has to stay at the price itcannot go down. This means more of the product is being producedthan it is consumed.
The pricefloor is the price above the equilibrium price which in turns givessurplus.
The priceceiling is the price below the equilibrium price which in turnsgives shortage.
In orderto have effective price floor, the price has to be set above theequilibrium price. With price ceiling the demand will be more thansupply, which means
there willbe shortage of the product, more people are n demand for it. Inorder to accomomdate the shortage there will be a rationing systemof the product
toaccommodate the increase in demand. Effective price ceiling is theprice below the equilibirum; any price below the equilibrium of theoriginal $5 will be effective.
Theequilibrium price is the price where supply and demand meets. Theequilibrium price on this schedule is at $5, and the quantity is300.
Thesituation at a price of $10 is a surplus of 975 - 150 = 820. Atthis price the consumer are only willing to consume150 of thecommodity leaving a surplus.
Areduction in price will increase the quantity demanded therebydecreasing the quantity supplied.
At a priceof $2 there is a shortage of 400 - 120 = 280, here the demand isgreater that supply.
When thegovernment impose a a minimum price of $7 in the exercise, there isa price floor occuring; at this the price cannot go below thegovernment imposed price.
Theoriginal equilibrium price was $5, now with the government imposeprice it has increased to $7 giving a surplus of 500 - 260 = 240.The price floor interferes with the function of the market, the
governmentimposing of $7 price means the price has to stay at the price itcannot go down. This means more of the product is being producedthan it is consumed.
The pricefloor is the price above the equilibrium price which in turns givessurplus.
The priceceiling is the price below the equilibrium price which in turnsgives shortage.
In orderto have effective price floor, the price has to be set above theequilibrium price. With price ceiling the demand will be more thansupply, which means
there willbe shortage of the product, more people are n demand for it. Inorder to accomomdate the shortage there will be a rationing systemof the product
toaccommodate the increase in demand. Effective price ceiling is theprice below the equilibirum; any price below the equilibrium of theoriginal $5 will be effective.