Question

Problems and Applications Q10 A market is described by the following supply and demand curves: QS = 3P QD = 400−P The equilibrium price is $100 and the equilibrium quantity is 320 . Suppose the government imposes a price ceiling of $80. This price ceiling isbinding , and the market price will be $80 . The quantity supplied will be 160 , and the quantity demanded will be . Therefore, a price ceiling

Answer 1

A price ceiling is a maximum price set by the government that restricts the price at which a good or service can be sold in a market. In this case, the government has imposed a price ceiling of $80.

To analyze the impact of the price ceiling, we need to compare the quantity demanded and quantity supplied at this price.

Given the demand curve QD = 400 - P, we can substitute P = $80 into the equation to find the quantity demanded:
QD = 400 - 80
QD = 320

On the other hand, the supply curve QS = 3P. Substituting P = $80:
QS = 3 * 80
QS = 240

Therefore, at the price ceiling of $80, the quantity demanded is 320 and the quantity supplied is 240.

Since the quantity demanded exceeds the quantity supplied (320 > 240), there will be a shortage in the market. This means that consumers will want to buy more than what is available at the regulated price, leading to a lack of supply.

In conclusion, the price ceiling of $80 will result in a shortage of 80 units (320 - 240).