Question

Then write a short paragraph or two explaining your diagram and answering the following question: Suppose Vancouver’s water supply became contaminated (consumers of the water would become ill). What do you predict would happen to the market for bottled water (Aquafina, Dasani, etc.,)? Do you think that Vancouver would be better off or worse off if the government ordered local stores NOT to raise prices for bottled water during this contamination emergency? Explain.

Answer 1

As the water supply of Vancouver becomes contaminated, the demand for bottled water increases. This will shift the demand curve rightward causing equilibrium price and quantity to increase.

If the government asks the local stores not to increase the price, the quantity demanded would be higher than the quantity supplied. This will cause a shortage of bottled water in the market.

But since it is an emergency situation. If nothing is done the people who cannot afford the high price of bottled water will have no option but to consume the water which makes them ill. Thus, having a price ceiling will definitely benefit the people of Vancouver.