For each of the following scenarios, use a supply and demand diagram to illustrate the effect of the given shock on the equilibrium price and quantity in the specified competitive market. Explain whether there is a shift in the demand curve, the supply curve, or neither.
a) The US government has introduced a price cap on steel a couple of years ago. The excess demand for steel has resulted in many complaints by lobbying groups in Washington, and to please these, the government raises the price cap on steel from $100/ton to $125/ton. This is however still below the free market price of $150/ton. Show the effect on the market for steel.
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- Apr 13, 2017 at 11:25am
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- Apr 13, 2017 at 11:42am