The island nation of Coconutistan recently suffered an unfortunate accident which took its water treatment plant offline, leaving residents without clean water in their homes. The plant for bottling water was unaffected by the accident. The graph shows the supply and demand for bottled water before the accident. Assume that $6 is the maximum price for a case of bottled water according to the price gouging laws on the island. Shift one or more curves to show the effect of the accident on the market for bottled water. Price ($)Quantity of bottled water by the case01002003004005006007008009001,000012345678910SupplyDemandPrice ceiling What is the amount of the shortage after the accident? shortage:
The island nation of Coconutistan recently suffered an unfortunate accident which took its water treatment plant offline, leaving residents without clean water in their homes. The plant for bottling water was unaffected by the accident. The graph shows the supply and demand for bottled water before the accident. Assume that $6 is the maximum price for a case of bottled water according to the price gouging laws on the island. Shift one or more curves to show the effect of the accident on the market for bottled water. Price ($)Quantity of bottled water by the case01002003004005006007008009001,000012345678910SupplyDemandPrice ceiling What is the amount of the shortage after the accident? shortage:
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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The island nation of Coconutistan recently suffered an unfortunate accident which took its water treatment plant offline, leaving residents without clean water in their homes. The plant for bottling water was unaffected by the accident.
The graph shows the
Shift one or more
Price ($)Quantity of bottled water by the case01002003004005006007008009001,000012345678910SupplyDemandPrice ceiling
What is the amount of the shortage after the accident?
shortage:
Transcribed Image Text:This graph represents the supply and demand of bottled water by the case, illustrating how a price ceiling affects the market.
**Axes:**
- The x-axis indicates the quantity of bottled water by the case, ranging from 0 to 1,000.
- The y-axis shows the price in dollars, ranging from $0 to $10.
**Lines:**
1. **Demand Curve (Purple Line):**
- The demand curve slopes downward from left to right.
- It starts at a price of $7 for a quantity of 0 and decreases to a price of $0 at a quantity of approximately 700.
2. **Supply Curve (Blue Line):**
- The supply curve slopes upward from left to right.
- It begins at a price of $3 for a quantity of 300 and increases to a price of $9 at a quantity of 750.
3. **Price Ceiling (Green Line):**
- A horizontal line set at a price of $6, cutting across the supply and demand curves.
- The price ceiling represents a government-imposed limit on how high a price can be charged for bottled water.
**Intersection Points:**
- The supply and demand curves intersect above the price ceiling line, indicating equilibrium price without the price ceiling would exceed $6.
The graph demonstrates the potential for a shortage in the market, as the quantity demanded at the price ceiling exceeds the quantity supplied.
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