Effects on Equilibrium price &

quantity.
*When Demand and Supply is perfectly
elastic & perfectly inelastic.
•Applications of Tools of Demand and Supply
–price control. (Price ceiling & Floor price).
PERFECTLY ELASTIC & PERFECTLY
INELASTIC DEMAND.
PERFECTLY ELASTIC & PERFECTLY
INELASTIC SUPPLY
Demand is perfectly elastic, supply
increases.
Demand is perfectly inelastic,Supply
shifts (increase &decrease)
Supply is perfectly elastic & perfectly
inelastic, demand increases.
• https://www.youtube.com/watch?v=eC1qF9B
VDT0 –
• https://www.youtube.com/watch?v=1EzY4Vl4
Price control
60U –

• https://www.youtube.com/watch?v=XgBPAuc
s-W4 – Price ceiling & price floor.
 ASSIGNMENTS
1. With the help of diagrams, show the effects of change in
demand (or shift in demand curves) on equilibrium price
and quantity of a commodity when
(i) Supply curve is perfectly elastic.
(ii) Supply curve is perfectly inelastic.
2. With the help of diagrams, show the effect of change in
supply(or shift in supply curves) on the price and quantity
sold in the following situations:
(i) When demand curve is perfectly inelastic.
(ii) When demand curve is perfectly elastic.
 Applications of tools of Demand and
Supply-Price control.
• Sometimes ,government play an important role in modern
mixed economies.
• At times ,the government fixes the price by law rather than
allowing it to be determined by free market forces of demand
and supply.
• Here two cases of price fixation (control) by the government
and use the tools of demand and supply .
• (1) Price ceiling or Maximum price legislation.
• (2) Floor price or Minimum price legislation.
 Price Ceiling or Maximum Price
Legislation.
• The price ceiling is the maximum legal price
which the suppliers can charge for a particular
good or service.
• Maximum price limit is imposed by the
government on several food items in a
situations of food shortage so as to protect
the interest of the consumers, particularly
poor consumers.
• Maximum price is set below the equilibrium
price. Here Qd >Qs
Price Control by Government-Price
Ceiling.
 How to control the situations?

• Allocation of available supply

(1) First come, first served.
(2) Allocation by Sellers’ Preferences.
(3) Rationing.
Emergence of Black Marketing
 Floor Price –Minimum Price
Legislation.
• Sometimes the government may legally fix the
minimum price at which the sellers may sell a
particular good or service.
• Floor price is fixed to assure the producers will
get a remunerative price for their product.
• For example, In India the government fixes
minimum prices of agricultural product like
wheat, rice etc .andminimum wages of the
labour.
Floor Price
Price Ceiling and Floor Price