Seeing the huge demand for pens, the government decides to impose price controls on masks. Consider the following two scenarios for part a and for part b Suppose the government imposes a price ceiling at $1. Is it binding?  Show whether there shortageor surplus in the demand-supply diagram above.    How large is this surplus or shortage?    Please Briefly explain your answers to the above.    Now, Suppose the government imposes a price floor at $2. Is it binding?  Show whether there is a surplus or a shortage in the demand-supply diagram above.  How large is this surplus or shortage?  briefly explain your answers to the above

ENGR.ECONOMIC ANALYSIS
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ISBN:9780190931919
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Chapter1: Making Economics Decisions
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Seeing the huge demand for pens, the government decides to impose price controls on masks. Consider the following two scenarios for part a and for part b

  1. Suppose the government imposes a price ceiling at $1.
    • Is it binding? 
  • Show whether there shortageor surplus in the demand-supply diagram above. 

 

  • How large is this surplus or shortage? 

 

  • Please Briefly explain your answers to the above. 

 

  1. Now, Suppose the government imposes a price floor at $2.
    • Is it binding? 
    • Show whether there is a surplus or a shortage in the demand-supply diagram above. 
    • How large is this surplus or shortage? 
    • briefly explain your answers to the above 
The image is a graph representing the supply and demand of pens. 

**Graph Description:**

- The x-axis is labeled as "Quantity of Pens" and ranges from 0 to 7.
- The y-axis is labeled as "Price of a Pen (dollars)" and ranges from 0 to 3.5.

**Curves:**

- The green line represents the demand curve, which slopes downwards from left to right, indicating that as the price decreases, the quantity demanded increases.
- The blue line represents the supply curve, which slopes upwards from left to right, illustrating that as the price increases, the quantity supplied increases.

**Equilibrium:**

- The point where the demand and supply curves intersect represents the market equilibrium. At this point, the quantity of pens demanded equals the quantity supplied, determining the equilibrium price and quantity.
Transcribed Image Text:The image is a graph representing the supply and demand of pens. **Graph Description:** - The x-axis is labeled as "Quantity of Pens" and ranges from 0 to 7. - The y-axis is labeled as "Price of a Pen (dollars)" and ranges from 0 to 3.5. **Curves:** - The green line represents the demand curve, which slopes downwards from left to right, indicating that as the price decreases, the quantity demanded increases. - The blue line represents the supply curve, which slopes upwards from left to right, illustrating that as the price increases, the quantity supplied increases. **Equilibrium:** - The point where the demand and supply curves intersect represents the market equilibrium. At this point, the quantity of pens demanded equals the quantity supplied, determining the equilibrium price and quantity.
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