Use the graph input tool to help you answer the following questions. You will no

Question

Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. In this market, the equilibrium prices is per box, and the equilibrium quantity of oranges is million boxes. For each price listed in the following table, determine the quantity of oranges demanded, the quantity of oranges supplied, and the direction of pressure exerted on prices in the absence of any price controls. True or False: A price ceiling above dollar 25 per box is not a binding price ceiling in this market. (Economists call a minimum ceiling that prevents the labor market from reaching equilibrium a binding minimum ceiling) True False

Explanation / Answer

(a) In equilibrium, quantity demanded = quantity supplied. So,

equilibrium price = $25 and quantity = 250 million

(b)

(1) If Price = $15, quantity demanded = 350, quantity supplied = 150.

There is upward pressure on price [Since there is a shortage].

(2) If Price = $35, quantity demanded = 150, quantity supplied = 350.

There is downward pressure on price [Since there is a surplus].

(c) TRUE

A ceiling price is binding only if it is above the equilibrium price (here, $25).

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