Question

2. Price controls in the Florida orange market The following graph shows the annual market for Florida oranges, which are sold in units of 90-pound boxes. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. 0 60 120 180 240 300 360 420 480 540 600 50 45 40 35 30 25 20 15 10 5 0 PRICE (Dollars per box) QUANTITY (Millions of boxes) Demand Supply Graph Input Tool Market for Florida Oranges Price (Dollars per box) Quantity Demanded (Millions of boxes) Quantity Supplied (Millions of boxes) In this market, the equilibrium price isper box, and the equilibrium quantity of oranges ismillion boxes. For each of the prices listed in the following table, determine the quantity of oranges demanded, the quantity of oranges supplied, and the direction of pressure exerted on prices in the absence of any price controls. Price Quantity Demanded Quantity Supplied Pressure on Prices (Dollars per box) (Millions of boxes) (Millions of boxes) 20 30 True or False: A price ceiling above $25 per box is not a binding price ceiling in this market. True False Because it takes many years before newly planted orange trees bear fruit, the supply curve in the short run is almost vertical. In the long run, farmers can decide whether to plant oranges on their land, to plant something else, or to sell their land altogether. Therefore, the long-run supply of oranges is much more price sensitive than the short-run supply of oranges. Assuming that the long-run demand for oranges is the same as the short-run demand, you would expect a binding price ceiling to result in a that is in the long run than in the short run.

Answer 1

At equilibrium, quantity demand and quantity supply curve intersects each other.

In this market, the equilibrium price is $25 per box, and the equilibrium quantity of oranges is 250 million boxes.

If demand > supply=> shortage in the market => Upward pressure on prices.

If demand < supply => surplus in the market => Downward pressure on prices.

Price	Quantity Demanded	Quantity Supplied	Pressure on Prices
(Dollars per box)	(Millions of boxes)	(Millions of boxes)
20	600	0	Upward
30	0	600	Downward

A price ceiling below the equilibrium price is said to binding price ceiling.

Hence, a price ceiling above the equilibrium price is not binding price ceiling.

True : A price ceiling above $25 per box is not a binding price ceiling in this market.

Assuming that the long-run demand for oranges is the same as the short-run demand, you would expect a binding price ceiling to result in a shortage that is larger in the long run than in the short run.

Because in long run, supply is more responsive to change in price than the short run.