Aplia: Student Question http://courses.aplia.com/af/servlet/quiz?quiz_action=takeQuiz&quiz_pr...

2. Price controls in the Florida orange market

The following graph shows the annual market for Florida oranges, which are sold in units of 90-pound boxes.

Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph.

Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.

Graph Input Tool

Market for Florida Oranges

50

45 Price
(Dollars per box)
40 Supply
Quantity 174 Quantity Supplied 126
35 Demanded (Millions of boxes)
(Millions of boxes)
30

25

20

15

10

0
0 30 60 90 120 150 180 210 240 270 300

In this market, the equilibrium price is $25 per box, and the equilibrium quantity of oranges is 150 million boxes.

Points: 1/1

Explanation: Close Explanation

The equilibrium price and quantity of oranges occur at the intersection of the demand and supply curves. Using the graph input tool, you can
see that this occurs at a price of $25 per box, which is where the quantity of oranges that producers are willing to supply is equal to the quantity
consumers demand (150 million boxes).

For each of the prices listed in the following table, determine the quantity of oranges demanded, the quantity of oranges supplied, and the direction of
pressure exerted on prices in the absence of any price controls.

1 of 3 3/3/2017 11:08 AM
Aplia: Student Question http://courses.aplia.com/af/servlet/quiz?quiz_action=takeQuiz&quiz_pr...

Price Quantity Demanded Quantity Supplied

(Dollars per box) (Millions of boxes) (Millions of boxes) Pressure on Prices

35 126 174 Downward

15 174 126 Upward

Points: 1/1

Explanation: Close Explanation

At a price of $15 per box, consumers demand 174 million boxes of oranges, but producers supply only 126 million boxes. Therefore, there is a
shortage of 48 million boxes. In the absence of a price ceiling, a shortage exerts upward pressure on prices until there is neither a surplus nor a
shortage.

At a price of $35 per box, consumers demand 126 million boxes of oranges, but producers supply 174 million boxes. Therefore, there is a

surplus of 48 million boxes. In the absence of a price ceiling, a surplus exerts downward pressure on prices until there is neither a surplus nor a

shortage.

True or False: A price ceiling below $25 per box is not a binding price ceiling in this market.

True

False

Points: 0/1

Explanation: Close Explanation

In order for a price ceiling to be binding—that is, in order for it to prevent the market from reaching equilibrium—it must be set below the
equilibrium price. In this case, you found that the equilibrium price was $25 per box. Therefore, any price ceiling below $25 per box would be
binding, and any price ceiling set above $25 per box would not.

Because it takes many years before newly planted orange trees bear fruit, the supply curve in the short run is almost vertical. In the long run, farmers

can decide whether to plant oranges on their land, to plant something else, or to sell their land altogether. Therefore, the long-run supply of oranges is

much more price sensitive than the short-run supply of oranges.

Assuming that the long-run demand for oranges is the same as the short-run demand, you would expect a binding price ceiling to result in
a shortage that is larger in the long run than in the short run.

Points: 0.5 / 1

Explanation: Close Explanation

A binding price ceiling always creates a shortage, but the severity of the shortage may differ between the short run and the long run. In the
short run, farmers may have no choice but to continue producing oranges since they already have orange trees planted. In the long run, if they
cannot sell their oranges at the free-market equilibrium price, more and more farmers will switch to other crops or sell their land. Therefore, at

the same price set by the price ceiling, fewer and fewer oranges will be produced.

The following graphs show the short-run and long-run effects of a binding price ceiling set at :

2 of 3 3/3/2017 11:08 AM
Aplia: Student Question http://courses.aplia.com/af/servlet/quiz?quiz_action=takeQuiz&quiz_pr...

Short Run Long Run

Short-Run Supply

Long-Run Supply

C C

S D S D

At a price of , the quantity demanded is . In the short run, the supply curve is nearly vertical, and there is a relatively small shortage of

oranges ( ). In the long run, the supply curve is much flatter, and the shortage is more severe. Because is much less than before,

is much greater.

3 of 3 3/3/2017 11:08 AM