Running Head: Supply and Demand

Supply and Demand

Students Name
Course Name
March 27th, 2016

Running Head: Supply and Demand

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Functions
Demand Function: QD = 120 4P
Supply Function: QS = 2P
Assuming the random values for the price, we will be able to obtain the various demand and
supply quantities as shown below:

Price
$1.00

Supply
(Qs)
2

Demand
(Qd)
116

$2.00

112

$3.00

108

$4.00

104

$5.00
$6.00
$7.00
$8.00
$9.00
$10.00
$11.00
$12.00
$13.00
$14.00
$15.00
$16.00
$17.00
$18.00
$19.00
$20.00
$21.00
$22.00
$23.00
$24.00
$25.00
$26.00

10
12
14
16
18
20
22
24
26
28
30
32
34
36
38
40
42
44
46
48
50
52

100
96
92
88
84
80
76
72
68
64
60
56
52
48
44
40
36
32
28
24
20
16

P= Price
S= Supply
D= Demand

Demand: Qd=120 4p
Supply: Qs= 2p
Equilibrium Price:
$20.00
Equilibrium Demand:
40
Equilibrium Quantity:
40

Running Head: Supply and Demand

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$27.00
$28.00

54
56

12
8

$29.00
$30.00

58
60

4
0

Supply & Demand

$35.00
$30.00
$25.00
$20.00

Price

Supply

$15.00

Demand

$10.00
$5.00
$0.00

20

40

60

80

100

120

Quantity

From this graph, it can be seen that the equilibrium quantity is 40 units when the price is $20

140

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If the government imposes the price ceiling, then the P1 will be an excess demand or shortage
equivalent to Q2-Q. Under any normal circumstances, the economic force of excess demand will
exert an upward pressure prices. However, in this case the price cannot go above the P1, which
is 16 since P1 is the maximum price. The price is unable to fulfill the rationing function leading
to a demand for a centrally administered system of the rationing of the good in the question.

Pricing Ceiling Effect on Consumers

In order for the price ceiling to impact the market, it will need to be below the price of the
market equilibrium. In this case, the equilibrium price is 20 when the price ceiling is 16. If the
economic price is more than the price ceiling, there will be a shortage of supplies as a result. The
lower price means that the less of the good is made. The amount requested will increment since
more individuals will to pay the lower cost to get the great while the makers will be supplying
less that will in the long run lead to a deficiency. Demand will outstrip the supply so there are a
lot of people wanting to rent the given units at the lower price but it does not have the ability.
But if the demand curve is elastic, then the net effect to the consumer surplus will be positive.
The landlords are harmed because their surplus was hit with the reduction in the number of
individuals who will take the lower price. Therefore, the individuals who remain in the market

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will have the lower price. In this case, the ceiling price is set below the equilibrium price. It
works in the favor of the consumers as the rentals now that are affordable so they will be wellserved by the policy of the price ceiling.
If the ceiling is imposed for a long period of time, the government might need to ration
the good to ensure the availability for the greatest number of the consumers. The prolonged
shortages were caused by price ceilings have the ability to create the black markets for the given
housing units. The result of the shortage of the goods can potentially lead to the consumers
having to queue up in line to get the given units and rationing from the government (RK, 2003).
Price Ceiling Effect on Quality
At this point, the landlords cannot keep charging what they used for the units at the
equilibrium price. This will force some of the individuals to leave the market because they will
sell their rentals and in turn, it will reduce the housing units available in the market. At the same
time, the people who are demanding the rentals will be able to purchase them at a lower price.
This will result in an increase in the market demand because the new buyers will be able to take
advantage of the lower market price. Then the people who have already purchase the goods, will
have the opportunity to more even more of the goods. Because of the decrease in the price, the
increase of the investments by the landlords in the housing units might be noticed in order to
compensate for the loss of revenue. Therefore, the quality might not be as good as the aim
would be to minimize the costs while maximizing the profits (Associated, 2008).
Effect of price ceilings on the different customers
Due to the fact that there is a differential in the given rent of the two housing units
(apartments and houses), the price ceilings are a small fraction of the overall costs of the

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business. Therefore, the increase in the minimum wage will have a small effect on the bottom
line of the business in the comparison to one where the rent is cheaper. The apartments have
customers who will be less price sensitive so it will make it easier for them to part with the
higher wages when the price increases. The price ceiling on the house rentals will protect the
low income consumers from the price of the house increasing by the landlords (Free, 2012).
Minimum Wage Proposal
The Congressional Democrats have introduced a proposal to raise the minimum wage to
$12 by 2020, but many states especially the ones that are governed by Republicans in the South
and the Midwest is going to be more difficult to raise the minimum wage past the federal level
which has stood still at $7.25 in 2009. The Republicans will typically argue that raising the
minimum wage will cost people their jobs and have a negative influence to the people that it was
meant to help.
The economic challenge could prove to be daunting due to the magnitude of the recent
minimum wage increases that set up the economics experiment that the country have barely
never seen. A former White House economist, Jared Bernstein stated that the people who
generally favor the higher minimum wages could lead to a large share of workers that are
affected by the move.
A variety of different researches have depicted that the higher wages can raise the
incomes for the low-wage workers without having to reduce the number of jobs in the area. The
evidence rests on the comparisons between the neighboring area that have the different minimum
wages and the semifinal study of the fast food restaurants on both sides of New Jersey and

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Pennsylvania after New Jersey raised the minimum wage in the early 1990s and there was not a
noticeable change in the employment.
The panel that was appointed by Governor Andrew M. Cuomo had the recommendations
to raise the minimum wage for the workers at the fast-food chains to New York to the forefront
of the experiment. When comparing the new fast food minimum wage to the wage of the typical
worker in a given area that is metropolitan. It might be noticed that the closer to the minimum
wage to the median wage, which is the amount that is earned by the workers in the middle of the
pay scale. This is going to have a greater impact for the better or worse based on the effect of
singling out the one industry remains to stay unclear.
Based on the data projections of the government, the proposed $15.00 minimum wage for
the fast-food workers could represent more than 60 percent of the local median wage in the
southern and lower population states. This is due to the increases of the federal minimum wage
that was pointed out by Ben Zipperer. Several of the economic analysis of the Sante Fe area has
increased to suggest that the little effect on the employment while the earlier effects will
increase. This is because they have extensively studied with all of the modern tools (Rittenberg,
2012).
Since the rent can be more expensive in a variety of different cities, the wages are a small
fraction of the overall costs of the business. Therefore, a given increase in the minimum wage
will have a small effect on the bottom line in the business in a comparison to the ones who have
a cheaper rent. The businesses in the cities of high costs will often have temporary customers
will be less price sensitive so it will be easier for them to offset the higher wages when the price
increases. When the minimum wage increase, it might not be efficient when comparing to lifting

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people out of poverty by the means of the wage subsidies like through an earned-income tax
credit (A, 2011).

References
A Sen, A Clemente, and L Jonker (2011). Retail Gasoline Price Ceilings and Regulatory
Capture: Evidence from Canada. American Law and Economics Review 532-564.
The Associated Press. (2008). Hugo Chavez Nationalizes Cement Industry. Retrieved on March
26th, 2016, from http://www.cbsnews.com/news/hugo-chavez-nationalizes-cementindustry/.
Free Advice. (2012). Price Controls Lead to Shortages in Venezuela . Retrieved on March
26th, 2016, from http://consultingbyrpm.com/blog/2013/10/shocke-price-controlslead-to-shortages-in-venezuela.html .
Rittenberg, Libby and Tregathen, Timothy. (2012). Principles of Microeconomics. Flat World
Education, Inc: Washington, DC.
RK Knittel and V Stango. (2003). Price Ceilings as Focal points for Tacit Collusion: Evidence
from Credit Cards. () 93 American Economic Review 1703-1729.

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