Question

The graph above is represented in the table below. Please complete the table below identifying the shortage or surplus.

Price (10kg bag)	Demand (10 kg bags)	Supply (SS) (10 kg bags)	Surplus (+) Shortage (-)
10	89	29
20	70	40
30	55	55
40	39	67
50	25	80
60	11	95

1. Based on your findings in the table above, what is the market equilibrium price and quantity for rice?                                                                     

2. Also, please examine the factors that can motivate the government to reduce the price of rice at $20 per 10 kg bag and the effects of that government legislation on the rice market.                                                       (7marks)

Answer 1

a) The condition for market equalibrium quantity and price is quantity supplied is equal to quantity demanded. So, the equalibirum price will be 30 and equalibrium quantity will be 55.

b) Factors that can influence government to reduce the price to 20 per 10 Kg is because to make rice which is essential good to be more affordable. So does government can introduce price ceiling. The equalibrium price is as discussed earlier question is 30. Since, this price ceiling is kept at 20 and due to this there will exist excess demand or shortage condition.

This shortage condition will lead to a very big line outside fair price shops. This make people to suffer more and also due to shortage and excess demand there is likely that new black markets to emerge.