1. Identify the situations depicted in the following figures in panel

1.	1. Identify the situations depicted in the following figures in panel A and B. 2. Why do such policies are followed and explain the impact of such policies?
Answer» 1. PANEL A – Price ceiling PANEL B –Price floor. 2. Price ceiling is fixed below equilibrium price. Imposition of price ceiling at ‘Pg’ gives rise to excess demand in the market price floor is fixed above equilibrium price. Imposition of floor price at ‘pg’ gives rise to excess supply.

1. Identify the situations depicted in the following figures in panel A and B. 2. Why do such policies are followed and explain the impact of such policies?

Answer»

1. PANEL A – Price ceiling PANEL B –Price floor.

2. Price ceiling is fixed below equilibrium price. Imposition of price ceiling at ‘Pg’ gives rise to excess demand in the market price floor is fixed above equilibrium price.

Imposition of floor price at ‘pg’ gives rise to excess supply.

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1. Identify the situations depicted in the following figures in panel A and B. 2. Why do such policies are followed and explain the impact of such policies?

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