1. Lovers of classical music persuade Parliament to impose a price ceiling of $4
ID: 1108480 • Letter: 1
Question
1. Lovers of classical music persuade Parliament to impose a price ceiling of $40 per concert ticket. Does this policy get more or fewer people to attend classical music concerts? O 2. The government has decided that the free- market price of cheese is too low. A) Suppose the government imposes a binding price floor in the cheese market. Use a supply-and-demand diagram to show the effect of this policy on the price of cheese and the quantity of cheese sold. Is there a shortage or surplus of cheese? B) Farmers complain that the price floor has reduced their total revenue. Is this possible? Explain. C) In response to farmers' complaints, the government agrees to purchase all of the surplus cheese at the price floor. Compared to the basic price floor, who benefits from this new policy? Who loses?Explanation / Answer
Answer 1:
price ceiling is a government imposed price control, or a limit, on the maximum price that can be charged. Government imposes binding price ceiling on some products to protect the consumers from high prices charged by the producer. If the lovers of classical music persuade government to impose a price ceiling then the price will be lower than equilibrium price. This will lead to increase in quantity demanded vis-s-vis quantity supplied. This will lead to shortage of concert tickets in the market.
Thus, this policy will get more people to attend the classical music concerts.
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