Answer to Question #275978 in Microeconomics for Mohad Houshya

Question

Assume that the equilibrium price of rice in West Bank is $ 1.5 /KG. Suppose that the

government decided to set a maximum price of rice equal to $1 /KG:

Use the demand and supply curves to show the effects of the new price on the quantity

consumed of rice.

Who is benefiting from fixing the price of rice at $1/KG? The consumer or producer.

Explain your answer using demand and supply curves.

Answer 1

The Quantity Demanded by Consumers will increase from Qe to Q1 when the prices is set lower than the equilibrium price that is from Pe to P1.The Consumers will benefit due to the price fall increasing their quantity demanded while to the producers,it will have a Negative effect because the Quantity supplied will reduce from Qe to Q2 corresponding to the price fall.