A low-income country decides to set a price ceiling on bread so they can make su
ID: 1190442 • Letter: A
Question
A low-income country decides to set a price ceiling on bread so they can make sure that bread is affordable to the poor. The conditions of demand and supply are given in the table below. What will the surplus or the shortage be if the price ceiling is set at $2.00?
Price
Qd
Qs
$1.60
9,000
5,000
$2.00
8,500
5,500
$2.40
8,000
6,400
$2.80
7,500
7,500
$3.20
7,000
9,000
$3.60
6,500
11,000
$4.00
6,000
15,000
3,000 shortage
8,500 shortage
3,000 surplus
Price
Qd
Qs
$1.60
9,000
5,000
$2.00
8,500
5,500
$2.40
8,000
6,400
$2.80
7,500
7,500
$3.20
7,000
9,000
$3.60
6,500
11,000
$4.00
6,000
15,000
Explanation / Answer
We can see equilibrium price is $2.8 as at this price quantity demanded = quantity supplied = 7500
If price ceiling is $2 then Qd=8500 and Qs = 5500
There will be excess demand of 3000. Thus there will be shortage of 3000 units in the market.
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