Academic Year:



Spring 2022

Course Information

Course Code:




Instructor Name:

Maia Chiabrishvili

Assignment Information

Marks Earned

Assignment Type:

Assignment 2 – Group (15%)

Due Date:

5/04/2022 5 PM

/ 100

No of Questions:

Number of Pages:

Student Information:


Name: …………………………………………

ID: ………………


This is a group assessment.

Please, solve all the questions and show all your work.

MCQ (15 points)

1. A price ceiling

a. has no effect.

b. is set to protect producers.

c. will cause a shortage.

d. will cause a surplus.

e. a and b are correct

f. b and c are correct

2. A legal minimum price at which a good can be sold is a

a. price floor.

b. price stabilization.

c. price support.

d. price ceiling.

3. In the figure shown, a price ceiling is shown in

a. panel (a).

b. panel (b).

c. both panel (a) and panel (b).

d. neither panel (a) nor panel (b).

Problem 1 (15 points)

According to the graph shown, answer the questions:

1. If the government imposes a price floor of $6.00 in this market, what will be the result shortage or surplus? Calculate

2. According to the graph shown, at which price ceiling would exist?

Problem 2 (50 points)

Below is the graph for market of Good A

The demand and supply for bottled water are summarized by the graph below:

Image result for supply and demand graph with numbers

a) What are equilibrium price and equilibrium quantity on the market?

b) Calculate consumer surplus, producer surplus and total surplus at Equilibrium.

c) If the government imposes price floor of $1.75 in this market, would there be an excess supply or shortage? Calculate.

d) Shade the areas of consumer surplus, producer surplus and deadweight loss after setting the floor at $1.75.

e) Calculate the value of producer surplus after the price floor is imposed.

f) Assume, now, that the government imposes a price ceiling of $0.50. Would there be an effect on the market (excess, shortage or nothing happens)? Explain.

Essay (20 points)

What happens to producer surplus when a price ceiling (below the equilibrium price) is enacted? What happens to consumer surplus? Will there be a shortage or a surplus in the new equilibrium?

What are the negative consequences of imposing price ceiling and price floor?

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