Suppose that the demand curve for wheat is Q=100−10p and the supply curve is Q=10p. The government imposes a price ceiling of p=3
i) Describe how the equilibrium changes. ii) What effect does this price ceiling have on consumer surplus, producer surplus, and deadweight loss?
Qs=100-10p and Qd=10p
At equilibrium Qs=Qd
If there is a price ceiling of $3 then
Thus, there will be a shortage of 70-30=40 units
if Qd=0 p=10
if Qs=0 thenp=0
The price ceiling leads to a deadweight loss,decreases producer surplus and increases consumer surplus.
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