Question

 2. Price controls in the Florida orange market

 The following graph shows the annual market for Florida oranges, which are sold in units of 90-pound boxes.

 Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.

 In this market, the equilibrium price is _______  per box, and the equilibrium quantity of oranges is _______  million boxes.

 For each of the prices listed in the following table, determine the quantity of oranges demanded, the quantity of oranges supplied, and the direction o pressure exerted on prices in the absence of any price controls.

 True or False: A price ceiling below $25 per box is a binding price ceiling in this market.

•  True

•  False

 Because it takes many years before newly planted orange trees bear fruit, the supply curve in the short run is almost vertical. In the long run, farmers can decide whether to plant oranges on their land, to plant something else, or to sell their land altogether. Therefore, the long-run supply of oranges is much more price sensitive than the short-run supply of oranges.

 Assuming that the long-run demand for oranges is the same as the short-run demand, you would expect a binding price ceiling to result in a _______ that is _______  in the long run than in the short run.

Answer 1

In this market , the equilibrium price is $25 per box, and the equilibrium quantity of oranges is 350 million boxes as the demand curve and supply curve are intersecting each other at price of $25 plotted on graph.

at price of $15 quantity demanded would be around 410 million boxes(approx) and quantity supplied would be 210 million boxes.As the quantity demanded is higher than quantity supplied it puts an upward pressure on prices causing them to raise.

at price of $35 quantity demanded would be around 285 million boxes(approx) and quantity supplied would be 485 million boxes(approx).As the quantity supplied is higher than quantity demanded it puts an downward pressure on prices causing them to fall.

a price ceiling will be a binding price ceiling if the ceiling limit set is below the equilibrium price in market. As equilibrium price is $25 any price ceiling below this price would a binding price ceiling. Hence given statement is True.

assuming that long run demand for oranges is the same as the short run demand ,you would expect a binding price ceiling to result in a shortage that is larger in the long run than the in the short run.