I have got an economics questions, and i did my personal revision by tying to work the question.
here is the question: using demand and supply analysis, explain the influence of the imposition of a maximum price and a minimum price on a product on price and quantity (10 marks).
My answer: Demand refers to the ability and willingness of a consumer to buy a particular product at a given time period. Demand should be backed up by the ability to pay for a particular product.
As the law of demand states that the other thing remaining the same: the higher of he price of a good, the smaller quantity demanded. Therefore if a maximum price is imposed on a product, the quantity demanded of that good will be lower though the price will remain high.With the maximum price imposed on the product which is represented in a graph, the effect on the graph would be, the dd curve will shift from D to D1.this will affect the quantity as it will decrease.
As for supply, it refers to the entire relationship between the price of a good or services and the quantity supplied. According to the law of supply, other thing remaining the same, it states that the higher the price,the higher quantity supplied. Therefore, if a maximum price is imposed on a product, it will result in a high quantity supplied. If a minimum price is imposed, it will have a low quantity supplied. The lower the price of a good,the lower quantity supplied.
i would appreciate if someone can correct this for me. thanks
of he = the in paragraph #3
"other thing remaining the same" = you might rephrase that to be a bit more " sophisticated?" (last paragraph)
Why not simplify what you say, or do you have a minimum of words you must have?
To me, it is this simple: the higher the price, the lower the demand. The lower the price, probably the higher the demand.
Sra
Nuts to your analysis. Setting a maximum price which is lower than the natural maximum will reduce supply, as the price will be artificially too low in times of scarity, and folks will buy all of the supply, resulting in shortage.
Setting a minimum price? if the minimum price is greater than what the market will support, there will be a glut of supply. Consider the US government agricultural price supports for sugar, honey, all grains...
At Sra, i know its simpe, its for 10 marks, if i wrote only abt a paragrapgh i will have my marks reduce.
Your answer is on the right track, but let me provide a more detailed explanation of how the imposition of a maximum price and a minimum price can influence the price and quantity of a product using demand and supply analysis.
1. Maximum Price:
When a maximum price, also known as a price ceiling, is imposed on a product, it is set below the equilibrium price (the price at which quantity demanded equals quantity supplied). This government intervention aims to make the product more affordable for consumers.
a) Demand: Since the maximum price is below the equilibrium price, consumers are willing to buy more of the product at the lower price. This increases the quantity demanded. However, some consumers who are willing to pay a higher price may not be able to purchase the product due to the maximum price.
b) Supply: Producers may be less willing to supply the product at the lower price since it is below their desired price. This can cause a decrease in the quantity supplied. In some cases, producers might choose to exit the market altogether if the maximum price makes it unprofitable for them.
The result of a maximum price is a situation where the quantity demanded exceeds the quantity supplied. This can lead to shortages, long waiting times, and black markets as consumers try to acquire the product at the imposed maximum price. Overall, the maximum price reduces the price of the product but may result in a decrease in the quantity supplied and quality of the product.
2. Minimum Price:
When a minimum price, also known as a price floor, is imposed on a product, it is set above the equilibrium price. This government intervention aims to ensure a minimum income for producers or to limit the consumption of certain goods.
a) Demand: Since the minimum price is above the equilibrium price, consumers are willing to buy less of the product at the higher price. This decreases the quantity demanded.
b) Supply: Producers are incentivized to supply more of the product at the higher price since it is profitable for them. This can cause an increase in the quantity supplied. However, if the minimum price is set too high, it can lead to excess supply or surplus.
The result of a minimum price is a situation where the quantity supplied exceeds the quantity demanded. This can lead to surpluses, wastage, and potential government intervention to purchase and store the excess supply. Overall, the minimum price increases the price of the product but may result in a decrease in the quantity demanded and potential inefficiencies in the market.
In conclusion, the imposition of a maximum price can decrease the price of a product but may result in a decrease in the quantity supplied. On the other hand, the imposition of a minimum price can increase the price of a product but may result in a decrease in the quantity demanded. The specific effects depend on the specific circumstances and the elasticity of demand and supply for the product.