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The governor of Virginia is worried the price of Virginia Ham is too high for the normal citizen. To reduce the price of ham, he wants to impose a price ceiling of $20 per ham sold in the state. Demand and Supply equations for hams are given below:
Where P is the price in dollars, and Q is the quantity of boxes sold per day.
A. Use the given demand and supply equations to determine
(1) the equilibrium price,
(2) the shortage or surplus with the proposed price ceiling and
(3) the economic surplus before and after the price controls are put in place.
B. Would economists say the price ceiling has an overall benefit or cost to society? Explain.
C. If you were a lobbyist representing ham producers, would you be in favor of this price ceiling? Why or why not? Be specific in your explanation.
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