Assume the market for wheelchairs is competitive. In the interest of fairness and equality, a binding...

Assume the market for wheelchairs is competitive. In the interest of fairness and equality, a binding price ceiling (20% below current market price) is introduced on wheelchairs. Assume that the supply of wheelchairs is unit elastic.

What is the likely effect on CS? Explain using a graph. (3.5 marks, usual deductions for missing/incorrect labels).

What would be the effect on producers' willingness to improve the quality and features of wheelchairs? Why? (1.5 marks)

Solutions

Expert Solution

Producer's willingness depends on the price of the product and the cost of producing that particular product. Thus, when the market price of the product is well above the cost of production, producer's willingness to sell the product increases and the producer gets an incentive to improve the quality and features of wheelchairs.

Rahul Sunny answered 1 year ago

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