UITM CAWANGAN SEREMBAN 3

ECO 415 :

MARKET EQUILIBRIUM AND MARKET APPLICATION

ANSWER ALL QUESTIONS

1. Define price control. Using suitable diagram explain the difference

between ceiling price and floor price. (5 marks)

Price control is regulations that was set by government to prevent prices from
rising above a maximum level or prevent prices from falling below a minimum
level.

prices

surplus S

P1 Floor price

P0 E0

P2 Ceiling price

shortage D
quantity
0 Q1 Q0 Q2

A floor price is the lowest possible selling price, beyond which the seller is not
willing or not able (legally) to sell the product. A ceiling price is the opposite , a
maximum selling price to stop prices climbing too high.

2. List two types of sample used in the self-test kits. (2 marks)

Saliva samples and nasal swab samples

3. From the above article state the benefit of the ceiling price to
consumers. (2 marks)

Self test kits more affordable and accessible

4. Explain two disadvantages of ceiling price. (4 marks)

-There will be a shortage, when quantity demanded exceed quantity supllier

and will reduces the quality product because suppliers has less financial to
invest in their bussiness.
-There will be lead a lower supply because suppliers discouraged from
producing more items when they can’t set their own price.

5. What are the penalize that will be charged for those selling these self-
test kits above the ceiling price. (3 marks)

can be penalised under the Price Control and Anti-Profiteering Act 2011.
Individuals can be fined up to RM100,000, or imprisoned not more than three
years, or both, for the offence. They could also be issued compound notices
of up to RM50,000. Companies are liable to a fine of RM500,000 or a
compound notice of up to RM250,000.

6. With suitable diagram shows what happen to the market, when supply
of self-test-kits decreases during the pandemic Covid 19. (4 marks)

prices

S1

S0
P1 E1

P0 E0

quantity
0 Q1 Q0

-Decrease in supply will make supply curve shift to the left from S0 to S1
-New equilibrium point E0 to E1
-Lower supply lead to higher equilibrium price from P0 to P1 and lower
equilibrium quantity from Q0 to Q1