The Problem:
It was determined that demand for rice was represented by the linear equation 1000-90 P. Because of the drought existing in the rice producing provinces of the country, supply was approximately: 200+ 18 P. The National Food Authority (NFA) and the IRRI located at UP Los Baños feared that because of the low supply level, prices of rice in the market might go up. The IRRI and NFA also estimated that demand for rice will exceed the current output by 300 cavans (i.e shortage of 300 cavans) for the first quarter alone. If you were the economist and you were asked to recommend to the President a certain price which will protect consumers, will you recommend a price ceiling or a price floor? If so, how much will that price be?
Show the solution. First, determine the price (price ceiling or price floor) and solve for the Market Equilibrium assuming there is no shortage.
Answers should appear on this blogs as comments. Help each other since i expect all can comment. If all in your class can access, comment, and answer the problem correctly, I will give you an 80% advantage in passing the Midterm. Good luck.
Given the following linear equation for quantity of supply and demand. We need to use the formula which is Qd=Qs to determine the price and Market Equilibrium.
ReplyDeleteQd=Qs
Qd = 1000-90P
Qs = 200 +18P
Qd = Qs
1000-90P = 200+18P
1000-200 = 18P+90P
800 = 108P
108P/108 = 800/108
P = 7.41 is the Market Equilibrium Price
Qd = 1000-90P
Qd = 1000-90(7.41)
Qd = 333.33
Qs = 200+18P
Qs = 200+18(7.41)
Qs = 200+133.38
Qs = 333.33
Supposed that the Market Equilibrium Quantity is 333.33 which is higher than the exceeds of current output of estimated demand for rice which is 300 cavans for the first quarter alone, I will recommend a price floor to the President.
Qd = 1000-90P
300 = 1000 - 90P
90P = 1000 - 300
90P = 700
90P/90 = 700/90
P = 7.78 should be the price to meet the Equilibrium
You recommended a price floor to the president but you failed to emphasize how much will that price be.
ReplyDeleteRemember Marlon that price ceilings normally arise when there is an excess demand (shortage) situation or where there is low supply. Take note also that you are required not the quantity but either a price floor or price ceiling. You have to identify what price will it be (if a price ceiling or price floor). Review your work. Thank you and congratulations.
ReplyDelete2nd Answer
ReplyDeleteGiven the following linear equation for quantity of supply and demand. We need to use the formula which is Qd=Qs to determine the price and Market Equilibrium.
Qd=Qs
Qd = 1000-90P
Qs = 200 +18P
Qd = Qs
1000-90P = 200+18P
1000-200 = 18P+90P
800 = 108P
108P/108 = 800/108
P = 7.41 is the Market Equilibrium Price
Qd = 1000-90P
Qd = 1000-90(7.41)
Qd = 333.33
Qs = 200+18P
Qs = 200+18(7.41)
Qs = 200+133.38
Qs = 333.33
It is calculated that the Demand exceeds 300 cavan which is 333.33 for the first quarter alone, I will recommend a price ceiling to the President because if the demand increases the seller want to increase the price of the goods that he is selling so that he can get more income from it and also because of the high demand the supply also increase and as the supply increases the price also increases.
Here is the calculation for the limitation of the increase of price for the said goods above.
Supposed that Qd = Quantity demanded = 1000 - 90P,
Where:
Qd = 300 cavans
Find the Price,
P = ?
Qd = 1000-90P
300 = 1000 - 90P
90P = 1000 - 300
90P = 700
90P/90 = 700/90
P = 7.78 be the limit of the price to be increased so that it will meet to the Market Equilibrium
Review your answer. How do you solve for the price when there is shortage or surplus? For sure its not Qd=Qs because this formula is used in finding the Market Equilibrium Price and Equilibrium quantity. You are asked to solve for a price (may it be price ceiling or price floor) which you have to suggest to the president. Why not discuss it with your classmates?
ReplyDeleteA price floor is the lowest legal price a commodity can be sold at. Price floors are used by the government to prevent prices from being too low. The most common price floor is the minimum wage--the minimum price that can be payed for labor. Price floors are also used often in agriculture to try to protect farmers.
ReplyDeleteTherefore, I will recommend to the President to make use of Price Floor.
Solution:
Price Floor
0 = Qd-Qs
0 = (1000-90P) – (200+18P)
0 = 800 – 72P
72P = 800
P = 11.11
MEP
Qs = Qd
1000 – 90P = 200 + 18P
-90P-18P = -1000+200
-108P = -800
P = 7.41
Price floor is a government-imposed lower limit on the price that may be charged for a product. If that limit is binding, it implies a situation of excess supply, which the government may need to purchase itself to keep price from falling.
ReplyDeleteAs an economist i recommend to the President to use the price floor and the solution where shown below:
Price Floor
0 = Qd-Qs
0 =(1000-90P)–(200+18P)
0 = 800 – 72P
72P = 800
72P/72=800/72
P = 11.11
MEP
Qs = Qd
1000 – 90P = 200 + 18P
-90P-18P= -1000+200
-108P =-800
-108P/-108 = -800/-108
P = 7.41
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ReplyDeleteA Price Floor is a government-imposed minimum price charged on a product or service. It differs from a price ceiling in that it artificially prevents the price from falling too low.
ReplyDeletePrice Floor Limit beyond which a cost will not be allowed to fall.
Price Floor
0 = Qd-Qs
0 =(1000-90P)–(200+18P)
0 = 800 – 72P
72P = 800
72P/72=800/72
P = 11.11
MEP
Qs = Qd
1000 – 90P = 200 + 18P
-90P-18P= -1000+200
-108P =-800
-108P/-108 = -800/-108
P = 7.41
Given the following situation of. We need to use the formula which is Qd-Qs = 300 to determine the price and Market Equilibrium.
ReplyDeleteGiven the linear equation which is
Qd = 1000-90 P
Qs = 200+ 18 P
Qd-Qs=300
1000-90P-200+18P = 300
-90P+18P = 300-1000+200
72P = -500
P = 6.94
Qd = 1000-90P
= 1000-90(6.94)
= 1000-624.6
= 375.4
Qs = 200+18P
= 200+18(6.94)
= 200+124.92
= 324.92
Because Qd > Qs (Qd is greater than Qs), therefore,as a producer we need to increase the supply and also increase the price.
So I will recommend to President a ceiling price because of the situation that the demand is higher than the supply, I, for example the producer, will increase the supply and because of high demand, i want it to increase the price of the said product.
Price floor is used by economist and the government to prevent the shortage of the goods and product's in the country. It was a low supply of goods where the price may climb up... therefore maybe it can reach the price ceiling but because Qd is greater than Qs ( Qd > Qs )there is no shortage...
ReplyDeleteIf I will be an economist i recommend to the President to use the price floor solution where shown below:
Price Floor
0 = Qd-Qs
0 =(1000-90P)–(200+18P)
0 = 800 – 72P
72P = 800
72P/72=800/72
P = 11.11
MEP
Qs = Qd
1000 – 90P = 200 + 18P
-90P-18P= -1000+200
-108P =-800
-108P/-108 = -800/-108
P = 7.41
A Price is a government-imposed minimum price charged on a product or service. It differs from a price ceiling in that it artificially prevents the price from falling too low.
ReplyDeleteif im a economist i recommend to our president that Price Floor Limit beyond which a cost will not be allowed to fall.and use a price floor
Price Floor
0 = Qd-Qs
0 =(1000-90P)–(200+18P)
0 = 800 – 72P
72P = 800
72P/72=800/72
P = 11.11
MEP
Qs = Qd
1000 – 90P = 200 + 18P
-90P-18P= -1000+200
-108P =-800
-108P/-108 = -800/-108
P = 7.41
I will recommend for a price ceiling to the President.
ReplyDeleteQd = 1000-90 P
Qs = 200+ 18 P
Qd-Qs=300
1000-90P-200+18P = 300
-90P+18P = 300-1000+200
72P = -500
P = 6.94
Therefore, the price that the government should impose to the commodity (rice) is P 6.94.
and the Market Equilibrium Price(MEP) assuming that there is no shortage is computed in this manner:
MEP
Qs = Qd
1000 – 90P = 200 + 18P
-90P-18P = -1000+200
-108P = -800
P = 7.41
Market Equilibrium Price is P 7.41.
Thank you, Sir.
I will recommend for a price ceiling to the President.
ReplyDeleteQd = 1000-90 P
Qs = 200+ 18 P
Qd-Qs=300
1000-90P-200+18P = 300
90P+18P = 300-1000+200
72P = -500
P = 6.94
the price that the government should impose to the commodity is P 6.94
Market Equilibrium Price----
Qs = Qd
1000 – 90P = 200 + 18P
-90P-18P = -1000+200
-108P = -800
P = 7.41
Market Equilibrium Price is P 7.41
If I were the economist and I were asked to recommend to the President a certain price to protect consumers,I will recommend a price ceiling because there might be a possibilities that the supplier will increase the price for the consumer because the demand of supply of rice will exceed so to protect consumer from the over pricing of the supplier the government should impose price ceiling as the solution shown below and the price recommended:
ReplyDeleteQd-Qs=300(cavans)
1000-90P-(200+18P)=300
1000-200-90P-18P=300
800-108P=300
800-300=108P
500/108=108P/108
P=4.63
Market equilibrium Price
MEP
Qd=Qs
1000 – 90P = 200 + 18P
1000-200=90P+18P
800=108P
800/108=108P/108
P=7.41
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ReplyDelete