Question 2 Chapter 6 Price controls in the Florida orange market Solution
The equilibrium price and quantity of oranges occur at the intersection of the
... [Show More] demand and supply curves. Using the graph input tool,
you can see that this occurs at a price of $25 per box, which is where the quantity of oranges that producers are willing to supplyis
equal to the quantity consumers demand (450 million boxes).
Explanation: Close Explanation
2. Price controls in the Florida orange market
The following graph shows the annual market for Florida oranges, which are sold in units of 90-pound boxes.
Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph.
Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.
In this market, the equilibrium price is per box, and the equilibrium quantity oforanges is million boxes.
Points: 1 / 1
For each of the prices listed in the following table, determine the quantity of oranges demanded, the quantity of oranges supplied, and the
direction of pressure exerted on prices in theabsence of any price controls.
Price
(Dollars per box)
Quantity Demanded
(Millions of boxes)
Quantity Supplied
(Millions of boxes) Pressure on Prices
35 378 630 Downward
15 522 270 Upward
Points: 1 / 1
PRICE (Dollars per box)
shortage larger
Explanation: Close Explanation
In order for a price ceiling to be binding—that is, in order for it to prevent the market from reaching equilibrium—it must be set below
the equilibrium price. In this case, you found that the equilibrium price was $25 per box. Therefore, any price ceiling below $25 per
box would be binding, and any price ceiling set above $25 per box would not.
True or False: A price ceiling above $25 per box is not a binding price ceiling in this market.
True
False
Points: 1 / 1
Because it takes many years before newly planted orange trees bear fruit, the supply curve in the short run is almost vertical. In the long
run, farmers can decide whether to plant oranges on their land, to plant something else, or to sell their land altogether. Therefore, the longrun supply of oranges is much more price sensitive than the short-run supply of oranges.
Assuming that the long-run demand for oranges is the same as the short-run demand, you would expect a binding price ceiling to result in a
that is in the long run than in the short run.
Points: 1 / 1
At a price of $15 per box, consumers demand 522 million boxes of oranges, but producers supply only 270 million boxes. Therefore,
there is a shortage of 252 million boxes. In the absence of a price ceiling, a shortage exerts upward pressure on prices until there is
neither a surplus nor a shortage.
At a price of $35 per box, consumers demand 378 million boxes of oranges, but producers supply 630 million boxes. Therefore, there
is a surplus of 252 million boxes. In the absence of a price ceiling, a surplus exerts downward pressure on prices until there is neither
a surplus nor a shortage.
Explanation: Close Explanation
A binding price ceiling always creates a shortage, but the severity of the shortage may differ between the short run and the long run.
In the short run, farmers may have no choice but to continue producing oranges since they already have orange trees planted. In the
long run, if they cannot sell their oranges at the free-market equilibrium price, more and more farmers will switch to other crops or
sell their land. Therefore, at the same price set by the price ceiling, fewer and fewer oranges will be produced.
The following graphs show the short-run and long-run effects of a binding price ceiling set at :
Short Run Long Run
Demand Demand
Short-Run Supply
Long-Run Supply
PC
PC
QS
QD
QS
QUANTITY (Millions of boxes)
QD
QUANTITY (Millions of boxes)
At a price of , the quantity demanded is . In the short run, the supply curve is nearly vertical, and there is a relatively small
shortage of oranges ( ). In the long run, the supply curve is much flatter, and the shortage is more severe. Because is
much less than before, is much greater. PRICE (Dollars per box)
PRICE (Dollars per box) [Show Less]