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Applications of Demand and Supply: Various Questions

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In some cases, the government can intervene in the market when the equilibrium price is too high or low. For example, a price ceiling is a legal maximum price that can be charged in a particular market. Do some research on your own.

Is a price ceiling set above or below the market price?

Give an example of a price ceiling and discuss some disadvantages and advantages of this type of government intervention.

An art museum raises its admission price, and ends up with a decrease in its total revenue. How could you explain this situation to the museum director?

Suppose Billy drinks two cups of coffee a day no matter what the price. What type of elasticity does coffee have?

What are the main determinants of elasticity of demand? Which is likely to be more elastic—the demand for orange juice or the demand for a particular brand of orange juice?

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Solution Summary

The questions asked relate to different areas of the applications of demand and supply: price ceiling/floors, elasticity of demand, relation between elasticity and total revenue, ...

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1- A price ceiling is a price set by the government, above which the product cannot be sold. Therefore, it's a maximum but this maximum is below the market price.

2- A certain level of rent is an example of a price ceiling. The government set this ceiling in order to help those who rent apartments pay a lower price than the equilibrium price, that's the advantage of a price ceiling (it helps consumers pay a lower price). However, by setting this ceiling, a problem of shortage will occur in the market: suppliers of apartments won't be willing to rent out their apartments at such a low price as much as people who now can afford to rent are want.
This would lead to a creation of a black market activity: people paying more rent but under the table.
Another ...

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