Question

What would be the effect of a price ceiling of ( i ) Rs . 150 and ( ii ) Rs . 80 , in a market with the following demand and supply curves Q - 1000-5P ( Qa is the quantity demanded and P is the price of the commodity ( Q , is the quantity supplied Q₁ - 5P .​

Answer 1

Answer:

Rs . 80

Explanation:

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Answer 2

Correct Question

What would be the effect of a price ceiling of ( i ) Rs . 150 and ( ii ) Rs . 80, in a market with the following demand and supply curves Qd = 1000-5P  and Qs = 5P respectively?​ (Qd is the quantity demanded, Qs is the quantity supplied and P is the price of the commodity)  

Answer

There is no effect in case i) and a situation of excess demand of 200 units in case ii)

Given

• Qd = 1000-5P

• Qs = 5P

To Find

the effect of a price ceiling of

( i ) Rs . 150

( ii ) Rs . 80

Solution

At Equilibrium,

Qd = Qs

or, 1000 - 5P = 5P

or, 10P = 1000

or, P = 100

Now, a price ceiling restricts the price of a quantity to rise beyond a particular price.

i)

Here, the price ceiling is Rs. 150. The market has reached equilibrium before the set price.

Hence this is a non-binding price ceiling.

There will be no effect of this on the market.

ii)

Here, the price ceiling has a lower value than that of the equilibrium.

Hence this is a binding price ceiling.

Therefore the Price is now fixed at Rs. 80

Hence on the demand side

Qd = 1000 - 5*80

= 1000 - 400

= 600 units

On the Supply side

Qs = 5*P

= 5*80

= 400 units

Here Qd>Qs

This means that there is a situation of excess demand of 200 units in the market.

Hence,

There is no effect in case i) and a situation of excess demand in case ii)

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