Suppose that the market demand and supply equations in a perfectly competitive market are QD =...
Suppose that the market demand and supply equations in a perfectly competitive market are QD = 16 − 4P and QS = −2 + 2P, respectively. What is the full economic price if the government imposes a price ceiling of $2?
Homework Answers
Market equilibrium when Qd=Qs
16-4P=-2+2P
18=6P
P=3 and Q=-2+6=4
when govt impose a price ceiling below equilibrium price then it is binding.
Thus full economic price=2
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