Question

Use data in the following table to explain the economic effects of a price ceiling at $6, at $5, and at $4.

Quantity Quantity

Price demanded supplied

$7 4,500 4,500

6 5,000 3,500

5 5,500 2,500

4 6,000 1,500



Use data in the following table to explain the economic effects of a price floor at $8, at $9, and at $10. Explain the economic effects.


Quantity Quantity

Price demanded supplied

$10 3,000 7,500

9 3,500 6,500

8 4,000 5,500

7 4,500 4,500

Answer 1

Question1: Use data in the following table to explain the economic effects of a price ceiling at $6, at $5, and at $4.

Price Demand Supply

$7 4,500 4,500

$6 5,000 3,500

$5 5,500 2,500

$4 6,000 1,500

For a price ceiling to be effective, it must be set below the equilibrium price.

From the data, the equilibrium price is $7 and the equilibrium quantity that is demanded and supplied in the market is 4,500.

If a price ceiling is set at $6, there will be a shortage in the market since the quantity demanded is greater than the quantity supplied in the market. A shortage of 5,000 - 3,500 = 1,500 will be created.

If the price ceiling is set at $5, a shortage of 5,500 - 2,500 = 3,000 will be created.

If the price ceiling is set at $4, a shortage of 5,000 - 1,500 = 3,500 will be created.

Question 2: Use data in the following table to explain the economic effects of a price floor at $8, at $9, and at $10. Explain the economic effects. 

Price Demand Supply

$10 3,000 7,500

$9 3,500 6,500

$8 4,000 5,500

$7 4,500 4,500

From the information, the equilibrium price is $7 and the equilibrium quantity demanded and supplied in the market is 4,500.

For a price floor to be effective, it must be set above the equilibrium price.

At a price floor of $8, the quantity supplied will be greater than the quantity demanded. A surplus of 5,500 - 4,000 = 1,500 will be created.

At a price floor of $9, a surplus of 6,000 - 3,500 = 3,000 will be created.

At a price floor of $10, a surplus of 7,500 - 3,000 = 4,000 will be created.