Question

Exhibit 4-9

Price of Good X	Quantity Demanded	Quantity Supplied
$10	220	110
11	200	150
12	180	180
13	150	210
14	120	240
15	80	290

Refer to Exhibit 4-9. Suppose that the government imposes a price ceiling at a price of $11. How many fewer units would be exchanged with the price ceiling than in a free market?

Answer 1

The price ceiling is a legal maximum price which can be charged by the sellers and it is set below the equilibrium price. The price ceiling imposed by the government leads shortage of goods.

If price ceiling is set below the equilibrium price, then it will be binding and if it is set above the equilibrium price, then it will be not binding.

Free market equilibrium price $12 and quantity is 180 units.

When price ceiling is $11, the quantity supply is 150 units and quantity demand is 200 units but only 150 units are exchanged.

It means =180-150

=30

It means 30 fewer units are exchanged in case of price ceiling.