I need help in microeconomics assignment?
i. A price ceiling increases the amount of product that consumers buy because it keeps the price below the competitive market equilibrium.
ii. A price floor reduces the amount of product that consumers buy because it keeps the price above the competitive market equilibrium. (a price floor means that it is the minimum price that the producers can ask for their products: it is the opposite to price ceiling)
For each of the two arguments, state whether you agree or you disagree. Use a demand and supply graph to explain your answer.
plz can anyone give clear answer for these!
Answer:
draw out the graphs for each case.
2 points that explains why:
1. Consumer surplus (ignore if you haven't learnt it)
Compare the area of the consumer surplus and explain how its transferred away in the case of price floor, or increased in the case of price ceiling.
2. the point where the price floor/ceiling line meets the demand is the new quantity demanded, compared to the original quantity demanded at equilibrium(demand = supply).
look at the point where the price ceiling or price floor hits the demand, and compare to the original point where equilibrium is at. its easy to see that when there's a price floor, the quantity where the price floor line hits the demand is lower than it was at equilibrium.
similarly, the quantity demanded at the point where the price ceiling line hits the demand is higher than compared to the equilibrium point.
You will need to do up a chart that demonstrates how demand goes up as price goes down. One side of the chart will show price the other quantity of demand.
Have two straight lines represent the quantity demanded when the floor and ceilings are reached then have the curves exceed the limitations set by the straight lines when the floor and ceiling is reached.
Good luck.
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