Question

Questions 1-16: Given the following information about bushels of corn:

Price per Bushel	Quantity Demanded	Quantity Supplied
$1	650	100
$2	540	120
$3	350	150
$4	200	200
$5	190	300
$6	175	410

13. Give a real example of this in the real world.

Start from the original data in the table. Now, suppose the government imposed a maximum price of $2 per bushel of corn

14. What is the economic term for this?

15. What is the effect in the market of such a government action?

16. Give a real example of this in the real world.

Answer 1

13. Apple is a real example of this market structre. The price of apple set on the basis of its sweetness. The More sweet an apple, the more it's price. Now, the low and middle income group can't afford high cost. Also, the sweeter apples are difficult to get. So, with increase in sweetness, the price of apple rises with decrease of its suply and demand.

14. The economic term is "Price Ceiling".

15.A price ceiling is a government-imposed price control, or limit, on how high a price is charged for a product. Governments use price ceilings to protect consumers from conditions that could make commodities prohibitively expensive.

16. Let us take a real world example:

Here in the given graph, a price of Rs. 3 has been determined as the equilibrium price with the quantity at 30 homes. Now, the government determines a price ceiling of Rs. 2. At this rate there is a shortage (demand for 40 houses, but supply is for only 20 houses). In the long run, the extra 20 people will try to get a house on rent, which will eventually give rise to black market and higher rents.