
a. Determine the equilibrium price and quantity.

Eq. Price = BM 26
Eq.Quantity = 350 kg

b. If the government decided to fix the market price at RM24.00:
i. How much is the shortage or surplus in the market?

= There will be a shortage of 200

ii. Based on b (i), what is this price control known as?

= Min price (Floor price)

iii. Sketch the diagram based on the answer in b(ii)






### Part (a): Equilibrium Price and Quantity

Given:
- **Equilibrium Price** = RM 26
- **Equilibrium Quantity** = 350 kg

At the equilibrium, the quantity demanded equals the quantity supplied, meaning the market is in balance.

### Part (b): Government Price Fixing at RM 24.00

#### (i) Shortage or Surplus

If the government fixes the price at RM 24.00, which is below the equilibrium price of RM 26.00, a **shortage** will occur because the quantity demanded will exceed the quantity supplied.

Given the information:
- **Shortage** = 200 kg

This means that at the price of RM 24.00, the market will experience a shortage of 200 kg.

#### (ii) Price Control Type

The price control described in part (b)(i) is commonly referred to as a **price ceiling**, not a minimum price (floor price). A **price ceiling** is set below the equilibrium price to keep prices from rising above a certain level, which often leads to shortages.

#### (iii) Diagram Sketch

To illustrate this scenario:

1. **Draw the Supply and Demand Curves**: 
   - The supply curve (upward sloping) represents the relationship between price and quantity supplied.
   - The demand curve (downward sloping) represents the relationship between price and quantity demanded.

2. **Mark the Equilibrium Point**:
   - Indicate the equilibrium price at RM 26 and the equilibrium quantity at 350 kg, where the supply and demand curves intersect.

3. **Indicate the Price Ceiling**:
   - Draw a horizontal line at RM 24 (the price ceiling).
   - Show the corresponding quantity demanded and quantity supplied at this price. The difference between these quantities is the shortage (200 kg).

4. **Label the Shortage**:
   - The area between the quantity demanded and quantity supplied at RM 24 should be shaded or marked to indicate the shortage.

Would you like a diagram, more details, or do you have any further questions?

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**Follow-up Questions:**

1. What are the implications of a price ceiling on the overall market?
2. Can you explain the difference between a price ceiling and a price floor?
3. What factors can cause shifts in the supply and demand curves?
4. How might the government address the shortage caused by the price ceiling?
5. What happens to consumer and producer surplus when a price ceiling is imposed?
6. What are some real-world examples of price ceilings?
7. How does a shortage impact the market in the long run?
8. How might black markets develop as a result of a price ceiling?

**Tip:** Always consider the unintended consequences of price controls, such as shortages or surpluses, when analyzing market interventions.

Explore the concepts of equilibrium price, price controls, and market shortages in economics. Learn how to determine equilibrium price and quantity, and analyze the effects of government price fixing on market dynamics.

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