Question

 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.

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

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

 True or False: A price ceiling below $25 per box is a binding price ceiling in this market. (Economists call a price ceiling that prevents reaching equilibrium a binding price ceiling.)

•  True

•  False

Answer 1

Equilibrium occurs when demand = supply.

Thus equilibrium price is $25 while equilibrium quantity is 350.

Price	Quantity Demanded	Quantity Supplied	Pressure on Prices
20	385	280	Upward
30	315	420	Downward

At P = $20, demand > supply induce producers to raise the price to gain maximum profit puts upward pressure on prices.

At P = $30, supply > demand induce producers to produce less otherwise it will make inventories causing downward pressure on prices such that goods are sold at lower prices and market is clear.

True as price ceiling below equilibrium price level is binding price ceiling