In April 2020, there was shortage of Ghacem cement in the country which led to a rise in the price of Ghacem cement. The government then intended to put a price ceiling on cement in the country to minimize the loss to users of cement for construction purposes. Some people were of the view that "the fixing of a price ceiling for cement in the country will not have any effect". Briefly discuss with the aid of an appropriate diagram, the effect of the imposition of price ceiling on Ghacem cement in the market. After the imposition of the price ceiling (and initial market equilibrium), two events took place in the cement market. First, Ghacem Company Limited obtained an efficient technology of production which influenced supply of Ghacem cement. This was followed by the second event (after a year) where the prices of raw materials for Ghacem cement production increased. An economist trained in the University of Professional Studies, Accra is of the view that, the final equilibrium price, after the effect of the second event has been felt, can only be lower than the initial equilibrium price (that is when the two events have not occurred). Another economist trained in the University of Ghana, however, on the other hand thinks the final equilibrium price can only be higher than the initial equilibrium price. By using appropriate diagram(s) briefly explain who is right. If none of the two economists is right, what is your view?
In April 2020, there was shortage of Ghacem cement in the country which led to a rise in the price of Ghacem cement. The government then intended to put a price ceiling on cement in the country to minimize the loss to users of cement for construction purposes. Some people were of the view that "the fixing of a price ceiling for cement in the country will not have any effect". Briefly discuss with the aid of an appropriate diagram, the effect of the imposition of price ceiling on Ghacem cement in the market. After the imposition of the price ceiling (and initial market equilibrium), two events took place in the cement market. First, Ghacem Company Limited obtained an efficient technology of production which influenced supply of Ghacem cement. This was followed by the second event (after a year) where the prices of raw materials for Ghacem cement production increased. An economist trained in the University of Professional Studies, Accra is of the view that, the final equilibrium price, after the effect of the second event has been felt, can only be lower than the initial equilibrium price (that is when the two events have not occurred). Another economist trained in the University of Ghana, however, on the other hand thinks the final equilibrium price can only be higher than the initial equilibrium price. By using appropriate diagram(s) briefly explain who is right. If none of the two economists is right, what is your view?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:In April 2020, there was shortage of Ghacem cement in the country which led to a rise in the price
of Ghacem cement. The government then intended to put a price ceiling on cement in the country to
minimize the loss to users of cement for construction purposes. Some people were of the view that
"the fixing of a price ceiling for cement in the country will not have any effect". Briefly discuss with
the aid of an appropriate diagram, the effect of the imposition of price ceiling on Ghacem cement in
the market.
After the imposition of the price ceiling (and initial market equilibrium), two events took place in
the cement market. First, Ghacem Company Limited obtained an efficient technology of production
which influenced supply of Ghacem cement. This was followed by the second event (after a year)
where the prices of raw materials for Ghacem cement production increased. An economist trained
in the University of Professional Studies, Accra is of the view that, the final equilibrium price, after
the effect of the second event has been felt, can only be lower than the initial equilibrium price (that
is when the two events have not occurred). Another economist trained in the University of Ghana,
however, on the other hand thinks the final equilibrium price can only be higher than the initial
equilibrium price. By using appropriate diagram(s) briefly explain who is right. If none of the two
economists is right, what is your view?
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