Question

(Microeconomics 101)

Recognize how changes in supply and demand affect market outcomes and explain the effect of government regulation on prices ?

Use your own words and be sure to support your statements with logic and arguments. Post your comments.

( Please I need you to help me and write your own word I have seen a lot of answer on the website but I don't want to copy it and lose the grades )

Answer 1

Ans.

Changes in supply

An increase in supply of a good in the market leads to a surplus of the good in the market leading to a decrease in price of the good but increase in its equilibrium quantity.

A decrease in supply of a good in the market leads to a shortage of the good in the market leading to an increase in price of the good but decrease in equilibrium quantity.

Changes in demand

An increase in demand for the good in the market leads to a shortage of the good in the market leading to an increase in price and quantity of the good at equilibrium.

A decrease in demand for the good in the market leads to a surplus of the good in the market leading to a decrease in price of the good and decrease in the quantity at equilibrium.

Price regulations by the government

A price floor above the market clearing price lead to an increase in quantity supplied and decrease in quantity demanded of the good leading to a surplus of the good in the market. This leads to a lower than equilibrium quantity bought in the market leading to an inefficient outcome

A price ceiling below the market clearing price leads to a decrease in quantity supplied and increase in quantity demanded of the good leading to a shortage of the good in the market. This leads to a lower than equilibrium quantity sold in the market leading to an inefficient outcome.

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