Question

The table below gives information on bottled water in Florida. As you would expect, the demand for water is higher than normal during a hurricane.
Price (per bottle) Quantity supplied Normal times quantity demanded Hurricane quantity
$6 100 25 75
$5 85 35 85
$4 70 45 95
$3 55 55 105
$2 40 65 115
$1 25 75 125
Concerned with citizen complaints of price gouging during past hurricanes, Florida's state government passes a law setting a price ceiling for a bottle of water equal to the market equilibrium price during normal times. After all, it seems unfair that sellers of water gain because of a hurricane.

During a hurricane, there would be a shortage of _____ bottles of water.

Without the antiprice gouging law, consumers would have to pay $ _____ more than the ceiling price, but they would bv able to buy _____ more bottles of water.

Answer 1

Answer:

First we need to first find the equilibrium quantity and price during normal times.

The equilibrium price in normal times is P=$3 and the equilibrium quantity is 55 bottles.

During the hurricane, the government will set a price ceiling of $3. We can infer from the table that the quantity supplied at P=$3 is 55 bottles while the quantity demanded during hurricane at the price of $3 per bottle is 105 bottles. Hence,

105-55= 50

During a hurricane, there would be a shortage of 50 bottles of water.

If there were no price ceiling, then the equilibrium price would be such that the quantity demanded during hurricane equals the quantity supplied. From the table we can see that the equilibrium price would in that case be P=$5 per bottle where the equilibrium quantity is 85 bottles. With the price ceiling only 55 bottles are available for trading. Now without the price ceiling 85 bottles are available.

Hence consumers would have to pay an additional $2 (=5-3) but they can now buy an additional 30 bottles [=85-55].

Without the antiprice gouging law, consumers would have to pay $2 more than the ceiling price, but they would bv able to buy 30 more bottles of water.