Shortages, price controls, and queues. During the late 1980s and early 1990s, ec

Question

Shortages, price controls, and queues.

During the late 1980s and early 1990s, economic reforms initiated by Soviet President Mikhail Gorbachev began to raise consumer incomes; but the Soviet government continued to impose price ceilings on basic goods like food, clothing, household goods. As a result, there were severe shortages of many goods and long lines at all kinds of stores became common. Then, in January 1992, the new Russian government, under President Boris Yeltsin, removed retail price controls on most goods. Within a month, prices more than doubled on average and lines disappeared.

Analyze these events using the supply and demand model.

First draw a supply and demand diagram for some common good, i.e., butter, showing the market in equilibrium before the beginning of the Gorbaachev reforms. Next, use shifts of the appropriate curves to show why the combination of rising incomes plus price ceilings produced shortages and lines. Finally, show what happened when price controls were removed in 1992.

EDIT: I really don't need any graphs (if you don't have time for that), though it would help me understand this better. I just need to understand, "use shifts of the appropriate curves to show why the combination of rising incomes plus price ceilings produced shortages and lines. Finally, show what happened when price controls were removed in 1992."  

I have tried working this out, but I need someone to compare to. Thank you

Explanation / Answer

Pre-Gorbaachev Reforms :
The markets were in equilibrium, as the forces of demand and supply were correct by the market automatically, i.e., in case of price rising above the equilibrium price, there would be a huge pile of unsold stock that would pile up forcing the prices down to equilibrium price.

Gorbaachev Reforms :
The reforms increased the disposable income of people, since a rise in income causes an increase in income, it led to a shift of the demand curve rightward, i.e. consumers were willing to buy greater quantity of goods at the same price. But, there was no increase in supply as there was a price ceiling (max. price for a product was fixed). Thus, producers were unwilling to supply to the increased demand which led to frequent shortages of goods.

Yelstin Reforms :
Yelstin removed the price ceiling, i.e. producers were allowed to select their own price. As a shortage was prevailing, producers increased the price as well as their stock of good. The goods were sold at higher prices and shortage prevailed as the disposable income of the consumers had increased massively during Gorbaachev Reform. The prices increased to more than twice the existing level, as it was in that price region, that the quantity of goods demanded equalled the quantities of goods supplied. Hence, the market forces decided the new adjusted price after frequent market correction.

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