Help effects of this action?

Question

The government put a ceiling on the price of bread producers can charge, allowing a maximum price of $2 per loaf. What are the possible effects of this action?

Answer 1

If price ceiling is set above (or exactly on) current equilibrium (current price is below or on price ceiling) then nothing will change - because price ceiling will be ineffective.

If price ceiling is set below current equilibrium then this action will cause excess demand and shortages of supply - which may lead to black market effect.

Answer 2

Depends.

If its below equlibrium, then we got a huge problem.  Demand for bread will be higher than how much suppliers are willing to supply.  As a result, there is too much demand, and not enough bread for everyone.  In addition, producer surplus decreases; the difference between what they are willing to sell bread at (highest price they want to sell) and the price of bread (set by officials in govt; most likely producers won't let price be lower than ceiling if there is one.) will be much lower and producers would be hurt a lot.  So would consumers, there wouldn't be enough bread for them.

If the ceiling is at equlibrium then that's better but I don't see the point (as one respondent says, nothing will change and it'd be ineffective).  At equilibrium, some may not be able to afford it (b/c they're poor), but still its the most efficient price.  Equilibrium is the one that would bring the most positives for the most people.  It is the point in which any change in price or quantity would end up hurting someone (Equilibrium is the point in which no change in price or quantity can be made without hurting others).   So its the best price to have.

If the ceiling is above equilibrium, that's okay as well.  One thing to make it okay: price must be SET at equilibrium.  After all, it is the most efficient price.  Furthermore, if price is set anywhere above that (even if it is below ceiling), there would be too much supply and too little demand.  That'd be inefficent- producers would have much more products out there than people would buy.  So, in order for price ceiling above equilibrium to be efficient, price must be set at equilibrium. Hope that helps. Good luck :).

Answer 3

i think the companies they will be losing money since the price of flour went up. if it keeps going up and it costs more money to make the bread then what they are charging.