Download elasticity of demand

CHECK YOUR UNDERSTANDING
PRICE FLOORS AND PRICE CEILINGS
Assume that the demand and supply schedule for wheat in Canada is indicated in the
following chart.
Price per Bushel
$4
$3
$2
$1
Quantity Demanded
(million bushels)
11
15
19
23
Quantity Supplied
(million bushels)
17
15
13
11
1. Draw a supply and demand graph for wheat in Canada.
2. What is the equilibrium price for wheat? _______________________
3. Suppose the government sets a floor price of $4/bushel. Show this on the graph.
4. Using actual numbers for support, what will be the effect of the floor price on the wheat
market in terms of quantities demanded and supplied?
5. Is the government trying to help consumers or farmers? Explain.
6. Using actual numbers as support, what problem has the government created for itself?
What could the government do about this situation?
7. What is the possible outcome for the government?
8. What is the possible outcome for consumers?
9. Suppose the government sets a ceiling price of $2/bushel. Show this on the graph.
10. Using actual numbers for support, what will be the effect of the ceiling price on the wheat
market in terms of quantities demanded and supplied?
11. Is the government trying to help consumers or farmers? Explain.
12. Using actual numbers for support, what problem has the government created for itself?
What could the government do about this situation?
13. What are the possible outcomes of the ceiling price?