WEEK3: Applications of economic decision-making to market regulations

1. For the above market for soaps, if the government imposes a price ceiling of $3, explain the impact on the quantity sold, consumer surplus, producer surplus.
2. Is there excess supply or excess demand in the market if the price ceiling is $3?
3. Can you find out the deadweight loss if the price ceiling is $3?
4. Who gains from the price ceiling?
5. Now suppose that the government imposes a price floor of $5. Explain the impacts of the price floor on the consumer surplus, producer surplus, deadweight loss and winners and losers from the government policy of setting up a price floor.
6. Explain the price mechanism with a diagram.