Answer to Question #82949 in Economics for Wandile

Question

Assuming the equilibrium price of a 5kg bag of mealie meal is R45 Explain with aid of labelled diagrams what will happen if government
1. Fixes a minimum price of R40 for a 5kg bag of mealie meal
2. Fixes a maximum price of R40 for a 5kg bag of mealie meal

Answer 1

Assuming the equilibrium price of a 5kg bag of mealie meal is R45 Explain with aid of labelled diagrams what will happen if government

1. Fixes a minimum price of R40 for a 5kg bag of mealie meal, then nothing will change, because it is non-binding price floor.

2. Fixes a maximum price of R40 for a 5kg bag of mealie meal, then the equilibrium price will decrease to R40, the quantity demanded will increase and the quantity supplied will decrease, so there will be a shortage.