MICROECONIMICS
MICROECONIMICS
5th Edition
ISBN: 9781319372101
Author: KRUGMAN
Publisher: MAC HIGHER
Question
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Chapter 5, Problem 2P
To determine

To Explain:

In the late eighteenth century, the price of bread in New York City was controlled, set at a predetermined price above the market price.

  1. Through a diagram showing the state where the price of the bread is set above the market price and explain if the policy acts as a price ceiling or price floor
  2. The kind of inefficiencies that had arisen due to controlled price of bread which was set above the market price.
  3. Through a diagram showing the situation where due to leftward shift in the supply curve of bread the market price of bread rises above the controlled price and explain if the policy acts as price ceiling or price floor
  4. The kind of inefficiencies that occurred during that period.

Concept Introduction:

Price Celling:

It is a government-imposed price control or limits on the maximum price that can be charged for a product. Government exercises such controls to protect consumers from economic situations where prices of commodities could be prohibitively high.

Floor Price:

It is a government- imposed price control or limit on the minimum price that can be charged for a product. A floor price must be higher than the market price to be effective.

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Answer
M” method  Given the following model, solve by the method of “M”. (see image)
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