Microeconomics · free preview
Price Ceilings
A binding price ceiling sets the legal price below equilibrium, creating a shortage, rationing by queue and search instead of price, and destroying surplus even when it helps some buyers.
1. The law of the ceiling
The law of the ceiling
2. Rationing by waiting
Rationing by waiting
3. The surplus accounting
The surplus accounting
4. Why ceilings persist
Why ceilings persist
5. The shortage
Honey demand is Qd = 120 - 2P and supply Qs = 3P, equilibrium 24 dollars and 72 jars. A price ceiling of 18 dollars is imposed. What are quantity supplied, quantity demanded and the shortage?
6. Who gains and who loses
Under the binding ceiling at 18 dollars, which statement about surplus is correct?
7. The unfilled demand
Under a binding price ceiling of 18 dollars, quantity supplied is 54 jars. Demand at that price is Qd = 120 - 2P. Compute how many jars short of their desired purchase the buyers are, and write the number.
8. The ceiling that does nothing
Honey demand is Qd = 120 - 2P and supply Qs = 3P with equilibrium at 24 dollars. The city posts a legal maximum price of 30 dollars. What happens?
9. Life under the binding cap
Under the binding ceiling of 18 dollars in the honey market, which statement is correct?
10. Shortage at 21
Honey demand is Qd = 120 - 2P and supply Qs = 3P, and a binding ceiling sets the price at 21 dollars. Compute the shortage in jars, and write the number.
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