Price Elasticity
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Price Elasticity
Free Market
A free market can eliminate shortages inherent in the market by increasing the value or price of products and services. Increasing the price encourages the consumers to demand less of the product and the suppliers to provide more, thus ending the shortage. As Cowen and Tabarrok (2012) explained, a price ceiling is likely to make the quantity demanded more remarkable than supplied.
Price Ceiling
When the price ceiling is in place, keeping the price below the market price requires the quantity demanded to be larger. The price ceiling causes the amount requested to become more significant than the amount that is supplied. This explains the wasteful searches and long lines evidenced in price-controlled markets in that extra consumers or demanders must wait in the long lines for a long time aPrice Elasticitynd waste their efforts searching for the scarce products.
Equilibrium Price
The milk’s equilibrium price will be $3, while the quantity will be 3,500 gallons of milk. The equilibrium price is the price or point where the amount of products supplied is equivalent to the demanded amount. Drawing a curve using the provided information, the equilibrium point will be the position where the supply curve and demand curve intersect (Cowen and Tabarrok, 2012). Using the provided information, the amount of milk supplied and supplied is $3, which serves as the equilibrium price.
Yes. If the government places a price ceiling of $2 on milk, there will be a shortage. At $2, the amount of milk demanded is 4100 gallons while that supplied is 2000 gallons, resulting in a deficit of 2100 gallons. Shortage results when the quantity required is more significant than that provided (Qd> Qs).
Price Inelasticity
Reducing the price of health insurance by 30% will result in increased demand in the short run, an aspect that will create a shortage in health insurance owing to its price inelasticity. As such, the number of people covered will be fewer in the long run.
References
Cowen, T., & Tabarrok, A. (2012). Modern Principles of Macroeconomics + Study Guide. Worth Pub.