Question

In the market for Iphones the equilibrium price for Iphones is $400, and the quantity of Iphones sold is 20,000.

(f) The Processor used to make Iphones becomes considerably cheaper and innovation raises the incomes of the population. Show the relevant shifts in your diagram

(g) Suppose the government implements a price ceiling of $300. What happens to the market?

(h) Suppose the government implements a price ceiling of $500. What happens to the market?

(i) Suppose the government implements a price floor of $300. What happens to the market?

(j) Suppose the government implements a price floor of $500. What happens to the market

Answer 1

ANSWER.

f, Demand of Iphones will increase due to increase in income of the population and due to cheaper rates. As a result the demand curve shifts rightwards.In the following diagram OP is the equilibrium price and OQ isthe equilibrium quantiy before the changes. Due to the changes in the economy the demand curve shifts to the right ,fromDD toD1D1.As a result new equilibrium is established at point E1 and equilibrium price rises from OP to OP1 and quantity from OQ to OQ1.

g,    Price ceiling means maximum price of a commodity that the sellers can charge from the buyers Often,the government fixes this price lower than the equilibrium market price of acommodity. If the government impliments price ceiling of $ 300, (,it is lower than the equilibrium price ) ,it leads to excss demand and short supply.This is explained in the following diagram.

In the diagram OP is the equilibrium price ($ 400) and OQ ist he quantity. If the government implements price ceiling lower than the equilibrium price (OP1) it will leads to excess demand and shortage o0f supply in the market.This will lead to black marketing .

h , If the government implements price ceiling of $ 500 it leads to excess supply in the market as shown in the following diagram .(Generally govt. fixes price below the equilibrium price.)

j Price floor means the minimum price . Minimum support price or price floor is a regulation which holds the market price above the equilibrium price Because of this there will be excess supply in the market as shown in the diagram.

In the figure OP is the equilibrium price . OP1 is the price fixed by the govt.

i , If the govt, implements price floor of $300( it is slower than the equilibrium price) it will leads to excess demand But usually price floor is ditermined above the equilibrium price.