Question

 12. Disequilibrium - Price ceilings

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

 True or False: A price ceiling above $25 per box is not a binding price ceiling market. (Economists call a price ceiling that prevents the market from reaching equilibrium a binding price ceiling.)

•  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 oranges.

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

Answer 1

The equilibrium price is $25 per box and quantity is 250 million boxes. This occurs at the intersection of demand and supply curves.

Price

Quantity demanded

Quantity supplied

Surplus/shortage

Pressure on prices

Dollars per box

Millions of boxes

Millions of boxes

$30

320

480

Surplus

Downward

$20

480

320

Shortage

Upward

True. A price ceiling above market equilibrium price is not binding.

Shortage, larger effects.

When there is a surplus, producers will have unsold stock and would be willing to sell their goods at lower prices.

When there is a shortage, the demand for goods will be much higher and producers will increase the price of goods.

Farmers may be unwilling to sell at the price ceiling rate and would prefer the market price which is higher.

In the long run, fewer farmers may be willing to grow oranges due to the price ceiling, so the effects will be larger in the long run than in the short run.