Question

Consider a market where the demand and supply for the good are described by the following equations:

and

If the government implements a price ceiling of $45, this will result in

Answer 1

The given demand and supply equations for a market are as follows : Qd = 60 - 2PQs = -40 + 3P(a) If the market operates freely, then the equilibrium price can be calculated by equating the supply and demand, as shown below : Qd = Qs60 - 2P = -40 + 3P5P = 100P = 20Thus, the equilibrium price is $20.(b) If the government implements a price ceiling of $45, then the maximum legal price that a seller can charge is $45. Since the equilibrium price is lower than the price ceiling, there will be no effect on the market. In other words, the market will continue to operate freely, with the equilibrium price being $20. Therefore, the answer is "No effect on the market."