Answer to Question #169180 in Economics of Enterprise for Bless Uy

Question

Over a month ago the government established a price ceiling for pork. Consequently, there is a shortage in the market due to this price control. Presently, the government wanted to increase the price ceiling for pork which may reduce the shortage in demand. 

1. Demonstrate and explain a graph the three changes in the price due to the price control of the government with no shift in demand and supply. The three price phases are before the price control, the first price control and the third price control.

2. Assign value in your graphs and compute the three consumer and sellers surplus. Is there a deadweight?

Please read this article to guide you:

https://www.philstar.com/headlines/2021/02/26/2080490/da-open-higher-pork-price-ceiling

Answer 1

$$solution$$

Before price control the business operated using the market price at each given moment

as shown below

at first price control: setting up of the price ceiling , demand decreased due to most probably increase in price leading to shortage as suppliers are willing to supply at a high price in as shown below;

at the third price control ; setting up of a new price ceiling an increased one, will lead to increased demand :

B

consumer surplus =$wtp-mp=310-270=40\\$

sellers surplus=$mp-sellers\ recieving\ price=270-310=40$

Yes , since there is no socially optimal quantity of goods or services produced.