Price Controls (Ceilings and Floors) For Wheat
Please, for your answers to questions 1-40, please number, vertically, labeling the cases.
Case #1 Buyers got more income
Directions: Using graph paper and supply and demand schedules below, please plot the supply and
demand curves from the Market in Wheat.
Supply Schedule
Price
Quantity Supplied
$3.50
40
3.70
100
3.90
160
4.10
200
4.30
240
4.50
260
4.70
280
4.90
300
5.10
320
Demand Schedule for Market in Wheat
Price
Quantity Demanded
$5.30
40
5.10
80
4.90
120
4.70
160
4.50
200
4.30
240
4.10
260
3.90
280
3.70
300
3.50
320
New Demand Schedule for Market in Wheat
Price
Quantity Demanded
$5.30
160
5.10
200
4.90
240
4.70
280
4.50
300
4.30
320
4.10
n/a
3.90
n/a
3.70
n/a
3.50
n/a
Now assume that the Government has instituted a price control of $4.50. Please answer the following
questions. hint: draw that $4.50 price line and label it PG for "Government Price."
1. What would the new Market Price be if there was no price control? Hint: What is the price at E2?
2. Without the price control, what would be the quantity demanded at the new equilibrium?
3. Without the price control, what would be the quantity supplied at the new equilibrium?
4. What is quantity demanded if the Government enacted a price control of $4.50? Hint: Where does the
Government Price line intersect the new demand curve?
5. What is quantity supplied if the Government enacted a price control of $4.50? Hint: Where does the
Government Price line intersect the supply curve?
6. Would a price control of $4.50 be a price ceiling or a price floor?
7. Why?
8. Which is there? A government created shortage or a government created surplus?
9. What is the amount of the shortage or surplus? Hint: Compare the difference between quantity
demanded and quantity supplied.
10. Which brings more total wheat to the market (and creates more wealth), the market price or the
government price?
Case #2 People now prefer low-carb foods
Directions:
With the graph paper provided and supply and demand schedules below, please plot the supply and
demand curves from the Market in Wheat.
Supply Schedule for Market in Wheat
Price
Quantity Supplied
$3.50
40
3.70
100
3.90
160
4.10
200
4.30
240
4.50
260
4.70
280
4.90
300
5.10
320
Demand Schedule for Market in Wheat
Price
Quantity Demanded
$5.30
40
5.10
80
4.90
120
4.70
160
4.50
200
4.30
240
4.10
260
3.90
280
3.70
300
3.50
320
New Demand Schedule for Market in Wheat
Price
Quantity Demanded
$5.30
n/a
5.10
n/a
4.90
n/a
4.70
n/a
4.50
40
4.30
80
4.10
120
3.90
160
3.70
180
3.50
200
Now assume that the Government has instituted a price control of $4.10. Please answer the following
questions. hint: draw that $4.10 price line and label it PG for "Government Price."
11. What would the new Market Price be if there was no price control? Hint: What is the price at E2?
12. Without the price control, what would be the quantity demanded at the new equilibrium?
13. Without the price control, what would be the quantity supplied at the new equilibrium?
14. What is quantity demanded if the Government enacted a price control of $4.10? Hint: Where does the
Government Price line intersect the new demand curve?
15. What is quantity supplied if the Government enacted a price control of $4.10? Hint: Where does the
Government Price line intersect the supply curve?
16. Would a price control of $4.10 be a price ceiling or a price floor?
17. Why?
18. Which is there? A government created shortage or a government created surplus?
19. What is the amount of the shortage or surplus? Hint: Compare the difference between quantity
demanded and quantity supplied.
20. Which uses fewer resources and is therefore less wasteful and more efficient, the market price or the
government price?
Case #3: Oil and gas prices increase. Oil and gas are used in the production of wheat and are an
important production cost for wheat!
Supply Schedule for Market in Wheat
Price
Quantity Supplied
$3.50
40
3.70
100
3.90
160
4.10
200
4.30
240
4.50
260
4.70
280
4.90
300
5.10
320
Demand Schedule for Market in Wheat
Price
Quantity Demanded
$5.30
40
5.10
80
4.90
120
4.70
160
4.50
200
4.30
240
4.10
260
3.90
280
3.70
300
3.50
320
New Supply Schedule for Market in Wheat
Price
Quantity Supplied
$3.50
n/a
3.70
n/a
3.90
n/a
4.10
40
4.30
80
4.50
120
4.70
160
4.90
200
5.10
240
Now assume that the Government has instituted a price control of $4.50. Please answer the following
questions. hint: draw that $4.50 price line and label it PG for "Government Price."
21.What would the new Market Price be if there was no price control? Hint: What is the price at E2?
22. Without the price control, what would be the quantity demanded at the new equilibrium?
23. Without the price control, what would be the quantity supplied at the new equilibrium?
24. What is quantity demanded if the Government enacted a price control of $4.50? Hint: Where does the
Government Price line intersect the demand curve?
25. What is quantity supplied if the Government enacted a price control of $4.50? Hint: Where does the
Government Price line intersect the new supply curve?
26. Would a price control of $4.50 be a price ceiling or a price floor?
27. Why?
28. Which is there? A government created shortage or a government created surplus?
29. What is the amount of the shortage or surplus? Hint: Compare the difference between quantity
demanded and quantity supplied.
30. Which brings more total wheat to the market (creates more wealth), the market price or the
government price?
Case# 4: A genetically modified strain of wheat hits the market. Twice as much wheat is now grown in
half the time.
Supply Schedule for Market in Wheat
Price
Quantity Supplied
$3.50
40
3.70
100
3.90
160
4.10
200
4.30
240
4.50
260
4.70
280
4.90
300
5.10
320
Demand Schedule for Market in Wheat
Price
Quantity Demanded
$5.30
40
5.10
80
4.90
120
4.70
160
4.50
200
4.30
240
4.10
260
3.90
280
3.70
300
3.50
320
New Supply Schedule for Market in Wheat
Price
Quantity Supplied
$3.50
240
3.70
260
3.90
280
4.10
300
4.30
320
4.50
n/a
4.70
n/a
4.90
n/a
5.10
n/a
Now assume that the Government has instituted a price control of $4.10. Please answer the following
questions. hint: draw that $4.10 price line and label it PG for "Government Price."
31. Without the price control, what is the new Market Price?
32. Without the price control, what is quantity demanded at the new Market Price?
33. What is quantity supplied at the new Market Price?
34. What is quantity demanded if the Government enacted a price control of $4.10? Hint: Where does the
Government Price line intersect the demand curve?
35. What is quantity supplied if the Government enacted a price control of $4.10? Hint: Where does the
Government Price line intersect the new supply curve?
36. Would a price control of $4.10 be a price ceiling or a price floor?
37. Why?
38. Which is there? A government created shortage or a government created surplus?
39. What is the amount of the shortage or surplus? Hint: Compare the difference between quantity
demanded and quantity supplied.
40. Which uses fewer resources and is therefore less wasteful and more efficient, the market price or the
government price?