Working with Demand and Supply Price Ceilings. Government-imposed maximum price that prevents the price of a good from rising above a certain level in a market Short side of the Market prevails Price ceiling creates a shortage While the price decreases, the opportunity cost may rise
5. With a black market, the lowerquantity sells for a higher price than initially.
4. The result is a shortage – the distance between R and V.
Price per Bottle
3. and decreases quantity supplied.
2. increases quantity demanded
1. A price ceiling lowerthan the equilibrium price . . .
Number of Bottles of Maple Syrup per PeriodFigure 1: A Price Ceiling in the Market for Maple Syrup
Price per Pound
3. and increases quantity supplied.
1. A price floor higher than the equilibrium price . . .
4. The result is a surplus the – distance between K and J – which government must buy.
Millions of PoundsFigure 2: A Price Floor in the Market for Nonfat Dry Milk
Since equal dollar increases (vertical arrows) are smaller and smaller percentage increases . . .
and since equal quantity decreases (horizontal arrows) are larger and larger percentage decreases . . .
demand becomes more and more elastic as we move leftward and upward along a straight-line demand curve.
QuantityFigure 4: Elasticity and Straight-Line Demand Curves
|% Change in Quantity Demanded| < |% Change in Price|
|% Change in Quantity Demanded| > |% Change in Price|
2. At point B, revenue is $750 million.
3. Moving from Ato B,expenditure increases, sodemand must be inelasticover that range.
1. At point A , where price is $1,000 and 600,000 laptops are demanded, revenue is $600 million.
Quantity of Laptops
600,000Figure 6: Elasticity and Total Expenditure
Price per Ticket
4. and then find the minimum price needed for the market to supply that quantity.
3. But another way is to start with a quantity . . .
Millions of Tickets per Year
1. One way to use the supply curve is to start with the price . . .
2. and then find the quantity supplied at that price.Figure 9a: The Tax on Airline Travel
Price per Ticket
3. In the newequilibrium,buyers pay$340.
1. Before the tax,the supply curve is SBefore Tax and the price is $300.
4. And, net of the tax, sellers receive $280.
Millions of Tickets per YearFigure 10: Effect of Excise Tax on Airlines
Examinations per YearFigure 14: The Market For Health Care With Coinsurance