(solved) Economics - Assignment PDF

Added on - 15 Mar 2020

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Running head: ECONOMICS1Economics AssignmentName:Institution:Date:
ECONOMICS2Effects of price ceiling on Demand and supplyA price ceiling occurs when a cap is put by the government to put a legal limit on the price ofa particular product. In this case, the federal government of the island of Experimentia hasput price ceiling on tertiary education and it has highly regulated the education sector. This isbecause the federal government wanted to keep the education cost to be low(Perry, 2010).However, in order for the effective price ceiling to work the prices must be set to be belowthe natural market equilibrium. A shortage occurs immediately when the price ceiling is set.When a price ceiling is set by the federal government, there is more demand than there is atthe prices set at equilibrium. The supply is also less than the prices at equilibrium prices thusthe quantity that is demanded is more than the quantity that is in supply(Vanichjakvong,2002). The government has put price ceiling on tertiary education so that the people cannotbe exploited by paying high cost on the education services. The effect of this ceiling ondemand is that it creates more demand on education and therefore stretching the resources ofeducation facilities. The supply remains low for the tertiary education. Effects on prices arethat due to the government regulation, the prices will be constant as the regulation seeks toset the prices fixed. Inefficiencies occur when the marginal benefit tends to exceed themarginal cost at the ceiling cost for the quantity supplied(Dasgupta, 2010).
ECONOMICS3This graphPrice changes and effect on supply demand and priceFundamentally prices affect the market. Demand and supply are affected by changes in pricesof a commodity. The federal republic of Experimentia removed the price cap ceiling and thiswas the net effect of the market. If the prices are regulated the demand and supply willdetermine the net effect in quantity demanded and supplied. This is shown in that, if thedemand for tertiary education is high, the prices will remain high due to many people willingto get the services or get into the schools. If the supply is high, the prices will fall as manytertiary institutions will lower their prices to attract more students or buyers in the market.The reverse will be true and the , the lower the supply the higher the prices as the demandwill increase for tertiary education. The effect on prices will depend on whether the demandis high or low and whether the supply is high or low.
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