Answer to Question #228542 in Microeconomics for Laiba

Question

a) Analyze the effect of a price ceiling in the market for wheat on equilibrium price and quantity. Will

and producer surpluses.

competitive market.

consumers / producers / both benefit because of this price ceiling? Explain using changes in consumer

technology affect market demand and/or supply, equilibrium price and equilibrium quantity in a

(b) How will a simultaneous increase in the price of substitute good and an improvement in production

Answer 1

Question a

A price floor prevents a price from falling below a specific level, while a price ceiling prevents a price from increasing over that level. The demand and supply framework is used to examine price ceilings in this section. Consumers, when the price of one replacement product rises, the supply of the other decreases. Two or more items that can be produced utilizing the same resources are referred to as substitutes-in-production. When the price of one replacement product goes higher, the supply of the other goes down. When sellers create one product, they are unable to use resources to make another. Produce one or the other, but not both at the same time.

When a price ceiling is set below the equilibrium price, the quantity sought rises while the quantity provided decreases. This is why a price cap causes scarcity.

A price floor is a minimum permissible price that is established above the equilibrium price. The government prohibits a price below the minimum via a price floor. Crop yield per acre has increased dramatically due to technological advancements such as new machinery, fertilizers, herbicides, and crop types. Production capacity has increased dramatically across the world.

Question b

When the price of one replacement product rises, and the supply of the other decreases, two or more items that can be produced utilizing the same resources are substitutes-in-production. When the price of one replacement product goes higher, the supply of the other goes down. When sellers create one product, they are unable to use resources to make another. Produce one or the other, but not both at the same time.

Farmers are frequently forced to grow alternative crops, such as maize or soybeans. Automobile manufacturers must decide whether to build four-door sedans or pickup trucks.