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. Graph Input Tool Market for Florida Oranges 50 45 15 Price (Dollars per box) Quantity Demanded Millions of boxes) 40 900 Quantity Supplied (Millions of boxes) 0 Supply 35 30 PRICE (Dollars per box) 25 20 Demand 15 + 101 1 5 1 1 0 0 90 180 270 360 450 540 630 720 810 900 QUANTITY (Millions of boxes)

Answer 1

Hi student,

As per Chegg guidelines, I have answered your question. Please let me know in case of any query in the comments.

2. Price controls in the Florida orange market

The graph given in the question shows the annual market for Florida oranges.

In this market, equilibrium is determined where the demand and supply curves intersect, in absence of any government intervention.

Thus, equilibrium price = $25 per box and equilibrium quantity of oranges = 450 million boxes.

Now, when price = $20 per box, quantity demanded = 675 million boxes and quantity supplied = 225 million boxes. Since $20 per box lies below the equilibrium price, the forces of demand and supply forces the market price (=$20 per box) upward such that equilibrium price is reached.

Similarly, when price = $30 per box, quantity demanded = 225 million boxes and quantity supplied = 675 million boxes. Since $30 per box lies above the equilibrium price, the forces of demand and supply forces the market price (=$30 per box) downward such that equilibrium price is reached.

I have complied the findings in the below table:

Price ($ per box)	Quantity demanded	Quantity supplied	Pressure on prices
20	675 million boxes	225 million boxes	Upward
30	225 million boxes	675 million boxes	Downward

A price ceiling above $25 per box is a binding price ceiling in this market – FALSE.

This is because, a price ceiling can be defined as a government intervention on the maximum price that can be charged for a product. If the equilibrium price that balances demand and supply are above the price ceiling imposed by the government, then the price ceiling is binding. Market forces cannot naturally move the economy to equilibrium because when the market price hits the price ceiling, it cannot rise any more. Thus, the market price is the price ceiling imposed by the government.

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