Economics and Statistics

Your city council voted to set a price ceiling on the market for good X. The price ceiling is set to be equal to 75% of the current equilibrium price.  The current market demand can be modeled by the equation:   The market supply curve corresponds to the following equation:   Using the given information, find: the new price and the new amount of quantity sold  the shortage a tax per unit of good sold that would result in the same quantity that is available at the price ceiling Derive an equation for the new market supply curve with the tax. First, let's derive the equilibrium price and quantity for this market. Set the demand curve equal to the supply curve. Now that we know the original price (i.e P e ), we can derive the price ceiling and the quantity sold at that price: From our notes, we know that the quantity sold at that price must be equal to the amount that can be supplied by the producers. Therefore, all we ne...

Governments can decide that market prices are unjust, markets may not allocate goods and services to those in need. When this is the case, governments may put  price and quantity controls on the market. In this post we will explore the practice of price ceiling. A price ceiling is a maximum price that both producers and consumers are not allowed to exceed. This practice is used when a government thinks that a market price is excessive. In a competitive market  , if a government decides to impose a binding price ceiling (i.e: the new imposed price is smaller than the original equilibrium price), it results in the quantity demanded being greater than the quantity supplied.  The market is unable to provide a good or service to every consumer willing to buy the product at the new given price, this results in a shortage.  The shortage is represented by the difference between the quantity demanded and the quantity supplied at the new imposed price in the marke...