Answer to Question #81418 in Economics for vongani

Question

assume that the market price for a 5kg bag of rice is R80 and the government has announced that a 5kg bag of rice cannot be sold for less than R100 whats the effect on the market demand curve?

Answer 1

If the market price for a 5kg bag of rice is R80 and the government has announced that a 5kg bag of rice cannot be sold for less than R100, then this government decision will create a price ceiling, so the equilibrium price will rise, the quantity demanded will fall and the quantity supplied will rise, so there will be a surplus of rice and the deadweight loss will be created.