Economics – Demand and supply curves | e-Consult
Demand and supply curves (1 questions)
Login to see all questions.
Click on a question to view the answer
Answer 2
a) Supply and Demand Diagram:
(Diagram would be included here, showing a downward sloping demand curve and an upward sloping supply curve intersecting at an equilibrium point. The diagram would be labelled with axes, price, quantity, equilibrium price (e.g., £4), equilibrium quantity (e.g., 10), and the price ceiling line at £4.)
b) Consequence of a Price Ceiling:
A price ceiling of £4 will be binding because the market equilibrium price is £6. The price ceiling will be below the market equilibrium, leading to a shortage.
- Shortage: The quantity demanded will exceed the quantity supplied at £4.
- Rationing: Since the price is artificially restricted, the market will likely experience shortages and rationing. This could take the form of waiting lists, preferential allocation, or black markets.
- Inefficiency: The price ceiling prevents the market from reaching its efficient equilibrium, leading to a misallocation of resources.
Diagrammatic Representation (not possible to include in text format, but would show the supply and demand curves with a horizontal line at the price ceiling of £4, indicating a shortage).