Consider the following information on
the supply and demand of widgets.
Price (P):
$27
$24
$21
$18
$15
$12
$6
$3
$0
Quantity Demanded (QD):
0
2
4
6
8
10
12
14
16
Quantity Supplied (QS):
16
14
12
10
8
6
4
2
0
In
this context, using Excel Charts, set up a diagram showing the supply
curve, the demand curve, the equilibrium price, and quantity.
Assume
that the Government puts in place a price ceiling (i.e., a legal maximum
price) of $6 per pound. Carefully explain how this will affect the
quantity supplied, the quantity demanded, and the actual amount bought and
sold. Specifically, using Excel Charts, set up a diagram showing the
supply curve, the demand curve, the price Ceiling, and quantity that will
actually be bought and sold in this market.
Assume
that the government imposes a price floor of $ 21 per unit in this market.
In the context of a supply and demand diagram, show exactly what will
happen in the market and how much of a shortage or a surplus this will
generate.
Calculate
the total value of actual trade (defined as actual price multiplied by the
actual quantity) in this market in the original equilibrium and also under
the price controls described in parts b and c above.
