ib-economics-quantitative

Topic 4 – Price ceilings and price floorsYou need to be able to: Calculate possible effects from the price ceiling (maximum price) diagram, includingthe resulting shortage, change in expenditure and total expenditure.Calculate possible effects from the price floor (minimum price) diagram, including theresulting surplus, change in expenditure and total expenditure.PRICE CEILINGSCalculate possible effects from the price ceiling (maximum price) diagram, includingthe resulting shortage, change in expenditure and total expenditure.Step 1Use the linear functions given to draw the relevant demand and supply curves and to identifythe equilibrium price and quantity. (See pages 3 & 5, if you cannot remember how to dothis.)E.g.If the demand and supply functions for a product are Q D = 2000 – 200P andQ S = -400 + 400P.Step 2Draw the ceiling price onto the diagram, below the equilibrium price. Then indicate thequantity demanded and the quantity supplied at the ceiling price. Then calculate theshortage (excess demand) that is created by imposing the ceiling price.E.g.The government decided to impose a maximum price of $3. This is shown on thediagram below:Produced by Ian Dorton & Jocelyn Blink Page 28