Question

A political leader comes to you and wonders from whom she will get the most complaints she Institutes a price ceiling when demand is inelastic and supply is elastic 1. How do you respond? O Producers will key complain the most because a price ceiling is an implicit tax on producers and an implicit subsidy to consumers. Some producer surplus is transferred to consumers. He ative elasticities don't matter Although consumers will pay a lower price with the price celing rewer trades wil occur Consumers will key complain the most because the inelastic demand suggests consumers have few sternatives Consumers will likely complain the most because their inelastic demand leads to a much higher quantty demanded with a price ceiling. This increased quantity demanded cannot be met because supplers lower the output when a price ceiling is put in place Producers willkely complain the most because they are forced to imit the quantity supplied. This decrease leads to lower revenues and hence lower profits. Relative elasticies don't matter Demonstrate why your answer is correct. Instructions: On the graph below. use the tools to show the consumer Surplus after the price ceiling Then use the tool Ps to show The producer surplus after the price cering. Finally use the tool DwE to how the deadweight loss after the price celing Consumer and Producer Surplus with a Price Celing Price Price Carling Prey

Answer 1

QUESTION-1

The correct answer is option-C

• when demand is inelastic it implies that the good is a normal good demanded for basic necessities.
• if the price ceiling is implemented then,the suppliers would decrease the production,but due to inelastic demand the people would tend to demand,which would give rise to corrupt and unfair trade practices in the economy.the consumers would need the product because the demand curve is inelastic and they need the product for their consumption and survival.

QUESTION-2

CALCULATION OF TOTAL CONSUMER SURPLUS

CONSUMER SURPLUS » Caluulation of Rectangular + = calculation of Triangle 0 CALCULATION OR RECTANGULAR 2) height x base (9-2) x 3 $21

CALCULATION of TRIANGLE » 1 x height x base g 1 x X (162) 43 g $10.5 1 x 7 x3 TOTAL CONSUMER Surplus =$21 + $10-5 $ 31.5

CALCULATION OF PRODUCER SURPLUS

PRODUCER SURPLUS & hab 3 A 47 2 X 3 $6

CALCULATION OF DEAD-WEIGHT LOSS-

Deadweight loss = 1 x height & base 2 1 x (9-2) x (6-3) g 2 1 x 7 x3 = $10.5 2