Answer to Question #267787 in Microeconomics for dodo

Question

 Use a graph to explain the effect of an imposition by the government of a maximum price in the face mask market.

Answer 1

The price ceiling will have to be meticulously determined based on the state budget and market price. Second, the government should make the price ceilings for face masks public and give providers with clear guidance. This would also enable law enforcement to take effective measures to prevent any suppliers from exceeding the price ceiling, thereby restoring market stability. Third, after the coronavirus has been eradicated, the price ceiling regulation should be eliminated.

With Q2 face masks being supplied and demanded, the government would shift the demand curve to the right, lowering the equilibrium price from Pe to Pmax. Even with price restriction, this increase in supply would promote stronger consumer demand, as the quantity supplied would increase from Q1 to Q2. In this situation, the government would have to pay an opportunity cost, which would mean cutting spending in other areas.