Curtin College

Economics 100
Semester 3, 2010
Assignment 1

Name: GAN YunXian

Student ID: GAYXC101

Lecturer: Htay Htay Nyunt

Class Day & Time: Monday Morning 8:30- 12:30

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Contents Page

Page Number

Introduction 3

Analysis of article 4-6

Conclusion 7

Reference List 8

Article 9

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Introduction
Rice is a basic need for every human as it helps to maintain and provide body energy to do
things. Therefore, rice is a necessity. The article is about how price ceiling for rice would be
reintroduced if the prices for rice do not stabilize. Besides that, analysis on the topic of price
ceiling will be included in this report. This article used the economic model of price ceiling to
control the price of rice. To analyze this article, appropriate diagram and economic concept or
model is introduced in the analysis section of this report.

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Analysis
Price ceiling often occurs when government set a legal maximum price limit that the producer
can charged for the consumers. Normally, consumers would support government imposed price
ceiling when the price for, example, accommodation gets too high. Price ceiling is used to
control the price. However, it often leads to inefficiency to the economic. This is because when
there is price ceiling, there will be a shortage in the market.

On the diagram above, demand for the products is Q1, but supply for the products is Q2.
Hence, the market did not produce enough to fulfill the needs of demand of Q1. Besides that,
price control would result in Dead Weight Loss (DWL). Dead Weight Loss occurs when the
economic surplus in the market reduced due to price control which also means that, the
economic is not efficient or inefficient (Garnett et al, 2009).

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According to the article, price ceiling is reintroduced due to the instable of the price of rice.

The diagram above had shown the price ceiling of the rice market of the article. A, B and C are
the consumer surplus. Consumer surplus is the differences between the price that consumes
willing to pay minus the price that they actually pay for a product or services. D, E and F are the
producer surplus. Producer surplus is the price that consumers actually paid minus the cost of
production or the price that producer willing to sell or accept and the price the producers
actually receives. According to the article, there is a big difference between the retail and
wholesale price of rice. “Laksathosa sells potatoes at RS. 84 but supermarkets sell at RS.137 per
kilogram”.

Inefficient of the rice market also lead to DWL. If price ceiling is going to imposed to the rice
market, the quantity demand for rice would change from Qe to Q1. However, the supply is not
enough to meet the needs or the demand of consumers, which is Q2. This is the shortage that
caused by the imposition of price ceiling. Hence, DWL is between the area of C and E from the
diagram above.

Price ceiling would also lead to black markets. Black markets are those people who try to sell
the products in a higher price which violate the government price regulations. This is an illegal
action. Due to the shortage of quantity of rice, people trying to persuade consumers to buy rice
in a much more higher price. According to the article, opposition politicians are one of the

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reasons that mislead consumers to the black market price. Therefore, consumers tend to buy
rice in a higher price. From the diagram above, B, D and F are the black market.

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Conclusion
In conclusion, when government is in the market, there will be inefficiency for the economic.
Rice market became inefficient when government tries to impose a price ceiling for the price.
This will lead to a shortage of quantity supply and not enough products to meet the needs of
quantity demand of consumers. Although it is benefit to the consumers, but it will lead to black
market which eventually becomes a disadvantage for the consumers as they will try to buy the
products in a higher price. Although price ceiling will mislead consumers, but this is one of the
ways to helps the consumers. The economic theory of price ceiling explained or analyzed the
article on how the imposition of price ceiling would affect consumers as well as producers. Last
but not least, it also explained how black market will affect the consumers.

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Reference List

Garnett, A.M., P. Lewis, R.G. Hubbard, A.P. O’ Brien. 2009. MicroEconomics. New South Wales:

Pearson Education Australia.

Rizvi, S. 2010. Opposition hand in price hike- Johnston. http://print.dailymirror.lk/news/front-page-

news/28726.html (Accessed 2 December, 2010).

Taylor, B. 2006. Price Ceiling. economics.fundamentalfinance.com (Accessed 2 December, 2010).