Question 1

Suppose the government passes legislation to place a 10-cent price ceiling on each roll of toilet

paper. Assume the current market equilibrium price for toilet paper is 50 cents per roll.

a) Will there be more or less toilet paper for sale? Will the price ceiling cause a surplus or

shortage in the market? Draw a diagram to help you explain the reasons for your answer.

b) Are there ways that firms producing toilet paper can avoid the law to maintain their profits?

c) Is a black market in toilet paper likely to develop as a result of the price ceiling? Would a

black market make consumers and producers better off, or worse off?