In the mid-eighteenth century, the government of New France (modern-day Qubec) controlled the price of bread, which

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In the mid-eighteenth century, the government of New France (modern-day Québec) controlled the price of bread, which was set at a predetermined price below the free market price.

a. Draw a diagram showing the effect of the policy. Did the policy act as a price ceiling or a price floor?

b. What kinds of inefficiencies were likely to have arisen when the controlled price of bread was above the market price? Explain in detail. One year during this period, a poor wheat harvest caused a leftward shift in the supply of bread and therefore an increase in its market price. Montreal bakers found that the controlled price of bread in Montreal was below the market price.

c. Draw a diagram showing the effect of the price control on the market for bread during this one-year period. Did the policy act as a price ceiling or a price floor?

d. What kinds of inefficiencies do you think occurred during this period? Explain in detail.

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Macroeconomics

ISBN: 978-1319120054

3rd Canadian edition

Authors: Paul Krugman, Robin Wells, Iris Au, Jack Parkinson

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