View the step-by-step solution to:

Assume you are a policymaker in Washington DC. Lobbyists for the pre-schoolers of America have put pressure on their representatives to cap prices on...

This question was answered on Jan 26, 2014. View the Answer
Assume you are a policymaker in Washington DC. Lobbyists for the pre-schoolers of America have put pressure on their representatives to cap prices on graham crackers. You have been assigned a position on a new committee to study the impact of a price ceiling on graham crackers. A price ceiling is a maximum price that can be charged. This is set BELOW the equilibrium price.

Your job is to:
a.) Illustrate using a supply and demand graph what such an artificial price looks like.
b.) Explain what the results of such a move are for the graham cracker market. In other words, will there be a SHORTAGE, a SURPLUS, or neither created?
c.) Finally, what are the impacts of this price ceiling for those who wish to purchase graham crackers? (In other words, what is the unintended consequence of this action?) Given that there is a max price set, it will only be affordable to produce a certain number in order to be cost effective for the manufacturer. Which, in turn, will create a shortage.
Sign up to view the entire interaction

Top Answer

The solution is... View the full answer

8528435.doc

a.
The situation is shown in diagram above. Equilibrium is where demand equals supply, at
P*. The price set is below P* at Pc.
b.
At Pc demand > supply, which implies shortage will develop....

This question was asked on Jan 26, 2014 and answered on Jan 26, 2014.

Recently Asked Questions

Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors and customizable flashcards—available anywhere, anytime.

-

Educational Resources
  • -

    Study Documents

    Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access or to earn money with our Marketplace.

    Browse Documents
  • -

    Question & Answers

    Get one-on-one homework help from our expert tutors—available online 24/7. Ask your own questions or browse existing Q&A threads. Satisfaction guaranteed!

    Ask a Question
  • -

    Flashcards

    Browse existing sets or create your own using our digital flashcard system. A simple yet effective studying tool to help you earn the grade that you want!

    Browse Flashcards