Question

Use the table below depicting the sour cream market for this problem.

Quantity Demanded (pounds)	Price per Pound	Quantity Supplied (pounds)
750	$2.40	910
780	2.30	860
810	2.20	810
840	2.10	760
870	2.00	710
900	1.90	660

In order to ingratiate herself with the voters of Orville, the mayor sets a price ceiling of $2.10 per pound. Suppose that the stock market crashes and, as a result, people in Orville are poorer. This reduces the demand for sour cream as shown in the table below:

Quantity Demanded (pounds)	Price per Pound	Quantity Supplied (pounds)
590	$2.40	910
620	2.30	860
650	2.20	810
680	2.10	760
710	2.00	710
740	1.90	660

What effect will the mayor’s policy have in this situation?

Group of answer choices

A. Since the equilibrium price is now higher than the price ceiling, the price ceiling has no effect on the market

B.Since the equilibrium price is now higher than the price ceiling, a surplus results

C. Since the equilibrium price is now lower than the price ceiling, a shortage results

D. Since the equilibrium price is now lower than the price ceiling, the price ceiling has no effect on the market

Answer 1

In earlier situation equilibrium price is $2.20 where quantity demand and quantity supply both are equal.

the mayor sets a price ceiling of $2.10 per pound.

After crashes a stock market people in orville are poorer.after this new equilibrium price is $2.00 where quantity demand and quantity supply are equal I.e 710.

So this equilibrium price($2.00) is below the price celling price($2.10). Price celling is the action taken by the govt. To protect consumers by set a price which are lower than price that charged by the market. But in this case price celling is greater than equilibrium price so the policy of mayor's is not effect. Means price celling has no effect on market.

Therefore option (D) is correct answer. I.e Since the equilibrium price is now lower than the price ceiling, the price ceiling has no effect on the market.