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March 25, 2017

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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.

  • Economis - ,

    i would appreciate if someone can correct this for me. thanks

  • Economis - ,

    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

  • Economis - ,

    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...

  • Economis - ,

    At Sra, i know its simpe, its for 10 marks, if i wrote only abt a paragrapgh i will have my marks reduce.

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