Question

Question 2

1.with the diagrams differentiate between price ceiling and price floor as government intervention measures to market failure.

Support with references to the next above

2.use Diagram to explain how a so -called black market can develop when the government intervenes in the price mechanism by fixing prices

Answer 1

Answer:

Given that:

With the diagrams differentiate between price ceiling and price floor as government intervention measures to market failure.

a)

There are two types of price contents : Price ceiling and Price floors.A price ceiling is the regal maximum price for a good and services.while  The price floor is the regal minimum price.

The government imposes price controls for the very reason that it is not satisfied with the market price.

In price ceiling price are genereally set below the market equilibrium price.because price set above equilibrium price level has no impact on quantity supply.

A price ceiling creates a storage when the legal price in below the market equilibrium price that cause consumers to complete for the limited supply .supply is unlimited because supplies are not getting the price that would allow then to earn profit equilibrium of price ceiling is rent control.

A price floor is generally at above the market equilibrium price level.This creats excen supply of goods in the market suppiles are willing to supply more at the price floor than the market wants at that price.equilibrium of price floor is minimum .

b)

When government inverst in the price by fixing prices so could black market can be developed in one of the two types of price controls.

In order to protect the inverst of consumers ,the government impose price ceiling as maximum.This is called price ceiling or maximum price legistation.

The effect of price ceiling is that at this price Pmax .consumer demand a larger quantity but producers cut back their supply then leads to emergency of exces demand or shortage of commdity.

Externally the existence of unsatisfied demand will creat a situation of black marketing .A situation of black market is one in which sellers.sell the goods above the legal maximum price stipelated by the government .here to meet unsatisfied demand black markets charge higher prices than the legal maximum price.