What are price ceilings and price floors, Microeconomics

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1. Explain what are price ceilings and price floors and how they effect the market for a good or service. Also show through graphs, if they cause any inefficiencies in a perfectly competitive market.

2. Before the first Gulf War, Kuwait had the capacity to produce a certain amount of oil from its oil wells. After the war, it found that capacity greatly diminished because the oil wells were on fire. Draw Kuwait's PPF before and after the war, assuming that the only two goods produced are oil and food. Further assume that setting the oil wells on fire did not affect Kuwait's ability to produce food. Explain why the PPF before the war is different from the PPF after the war. If instead, Kuwait had faced economic growth how would it reflect on the PPF?

 


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