A government may want to impose price control

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Reference no: EM1312244

Q. There should be 63 workers in the industrial unit of Bulawayo but managing director stands alone in a deserted production room. Under President Robert Mugabe's price control programmed, his customers cannot cover the cost of goods so that they have stopped orders. ‘They simply can't sell, otherwise they are going to make a massive loss', said the businessman. "Every milliliter we would produce we would produce at a huge loss." The factory is a stark demonstration of Illustrate what happens when economics are ignored. It is a basic principle of marketplaces that price is concluded by supply also demand. If an outside agency, such as the ideologically Marxist Zanu-PF government, instead sets the price too low, suppliers will not produce - hence the empty shelves in Zimbabwe's super marketplaces.

(i) Suppose you estimated that the demand for the product that the factory in Bulawayo produces is given by P=100-5Qd, while the supply is P=40+Qs. Calculate the equilibrium price also quantity also illustrate your answers graphically.

(ii) Suppose the price control is set at P=$45. Find the new quantity that would be available for sale. Illustrate the price control, new quantity demanded also supplied on your graph in part (i).

(iii) Given the article, Illustrate what must have been the maximum controlled price allowed? Elucidate. Illustrate this price on your graph in part (i) as well.

(iv) Talk about why a government may want to impose price control. But in this case, does the Mugabe government achieve its intended purpose? Elucidate.

Reference no: EM1312244

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