Price Floors & Ceilings

Question 1-Price Floors

Link to Answer to Question 1

Part A:

Draw a supply and demand graph for light bulbs in Detroit. Label the quantity supplied in equilibrium as Q₀. Label the price paid in equilibrium as P₀. Assume P₀ = $5

Part B:

Assume Detroit imposes a $10 price floor for light bulbs. Draw a line for the price floor in your graph. Identify the quantity consumers are willing to consume at the price floor. Identify the quantity producers are willing to supply at the price floor (assume there is no black market). Identify what price are consumers willing to pay, if they could, for the output produced by suppliers with the price floor .

Part C:

Indicate on your graph the difference in quantity supplied and the quantity demanded. Is there an excess supply, excess demand, surplus, or shortage?

Part D:

Draw and label a price floor that will not affect the market in your graph.

Question 2-Price Ceilings

Link to Answer to Question 2

Part A:

Draw a supply and demand graph for staplers in Flint. Label the quantity supplied in equilibrium as Q₀. Label the price paid in equilibrium as P₀. Assume P₀ = $8

Part B:

Assume Flint imposes a $5 price ceiling for staplers . Draw a line for the price ceiling in your graph. Identify the quantity consumers are willing to consume with the price ceiling. Identify the quantity producers are willing to supply with the price ceiling (assume there is no black market). Identify what price are consumers are willing to pay, if they could, for the output produced by suppliers with the price ceiling.

Part C:

Indicate on your graph the difference in the price consumers are willing to pay for the quantity supplied and the price producers receive. Also indicate the difference in quantity supplied and quantity demanded. Is there an excess supply, excess demand, surplus, or shortage?

Part D:

Draw and label a price ceiling that will not affect the market in your graph.