Given the following diagram Price Floors and Ceilings GRAPH

Given the following diagram: Price Floors and Ceilings GRAPH Price ($) Price Floor Price Ceilling Price Floor 6.00 Price Floor P.5X Price 5 10 15 20 25 30 35 40 45 Q,Q, Quantity

Solution

Ans : a ) P = $ 5 , Q = 25 units

Ans : b )   P = $ 6 , Q = 20 units

Ans : c ) Yes, Price floor at $ 6 is effective.

Explanation :

When price floor is set above the equilibrium price then it will be effective from market point of view.There will be excess supply in the market.

Ans : d) P = $ 3 , Q = 35 units

Ans : e ) No , the price floor at $ 3 is not effective.

Explanation :

When price floor is set below the equilibrium price then it will be ineffective from market point of view. There will be more shortage in the market.

Ans : f ) When the price floor is effective , the quantity transacted decreases in the market.