GROUP A

QUESTION 1 2009
APRIL
PREPARE BY
ISMAIL@JUSTIN BIBIR
AZLAN
FIRDAUS
BRYAN ADAM
NELSON KELANANG
Q a)Define ceiling price (2marks)
-ceiling price is a government-imposed limit on the price
charged for a product
-act as protection to consumers from unattainable
neccessities comodities
-located below the equilibrium price in the diagram
 B)How does ceiling price differ from the
equilibrium price?Support your answer by using
a diagram. (4marks)
In economics, economic equilibrium is a state
of the world where economic forces are
balanced and in the absence of external
influences the (equilibrium) values of
economic variables will not change. It is the
point at which quantity demanded and
quantity supplied are equal.[1] Market
equilibrium, for example, refers to a condition
where a market price is established through
competition such that the amount of goods or
services sought by buyers is equal to the
amount of goods or services produced by
sellers. This price is often called the
equilibrium price or market clearing price and
will tend not to change unless demand or
supply change.
C)What is the retionale for imposing ceiling price
on rice? (2marks)
Let's say there is a shortage of wheat, and prices are going up.
What would a price ceiling do?

The price ceiling may make importing wheat not worthwhile at the ceiling price,
and prolong the shortage. But to the extent that there are supplies of wheat not
yet consumed, the price ceiling might encourage use of existing stocks at less than
the most necessary uses, depleting the stocks faster than if the price was allowed
to continue to rise.

Further, if the ceiling was not removed in short order, it might discourage farmers
from planting, which would continue the shortage.
If the price is allowed to rise, farmers would have a greater incentive to plant
wheat, which would increase supply. The higher price also encourages imports,
increasing supply.
Labour, well, they will likely eat less wheat bread.
D)Sketch two(2)separate diagrams to illustrate markets for
ST5 rice and ST10 rice.For each diagrams,indicate the old
price and the new price set by the government. (8marks)
e)From the ministry’s observation, it was found that several
retail stores were still selling at the old price.Explain two (2)
disadvantages of ceiling price on rice. (4marks)