Question

In the Roman Empire (27 BC to 476 AD), the emperor bought grain and distributed it for free to inhabitants of Rome. This program, the annona, almost certainly involved a price below the market equilibrium. 1 Use a supply and demand diagram to explain why, as a result of this program, Rome’s residents frequently pressured authorities for even more free grain.

Answer 1

When price is below the free equilibrium price, quantity demanded increases but quantity supplied decreases. This creates a shortage (excess demand), so all the consumers are unable to purchase at lower price, and the consumers who could not buy the good at lower price, keeps pressurizing authorities to increase supply.

In following graph, D0 & S0 are demand & supply curves intersecting at point E with equilibrium price P0 and quantity Q0. When price falls at Pc below P0, quantity demanded increases to Qd but quantity supplied decreases to Qs, causing a shortage of (Qd - Qs).