Microeconomics

Supply and Demand
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Question 1 (a)
Price ceiling refers to a government-imposed maximum price on a particular product and is set below the natural market equilibrium. The equilibrium price level is a price that is arrived at when the quantity demanded is equal to the quantity supplied for a particular commodity (Adil, 2013). When a price ceiling is set to be above the market price, there is no perceptible effect in the short run. On the other hand, when the price ceiling is set below the market price, this will be noticeable as it will cause shortage of goods, there will be more demand and less supply that will distort the equilibrium price (Adil, 2013). Therefore, there will be more quantity demanded than the quantity supplied leading to inefficiency market condition known as allocative inefficiency occurs because the price ceiling quantity supplied the marginal benefit exceeds the marginal cost. Hence the price ceiling is set below the market price.
Question 1 (b)
Advantages
As a macroeconomic tool, price ceiling has both advantage and disadvantages. On the the advantages is that it helps in keeping the cost of living affordable during high inflation .during high inflation prices increase faster than incomes hence reducing the purchasing power (Adil, 2013). This controlling aspect of the price ceiling helps price ceiling helps the consumer to maintain their standards of living (Adil, 2013). Also, it tend to prevent suppliers from highly pricing goods and services above the market price
On the other hand, one of its disadvantages that it reduces the quality of products; suppliers have low financial resources to invest because the supply is low. Also, when it reduces in goods production by suppliers because they cannot set prices on their own goods and the supplier is declined as well (Adil, 2013).
Question 2
Demand can be categorized into two, namely, elastic and inelastic. Basing on the case study, an increase in admission price lead to decline in total revenue, thus, the demand is elastic (William E. Hoover, Eloranta, Holmström, & Huttunen, 2013). The quantity demand has been affected by the increase in price of the product, basing on the law of demand and supply. In the Art museum the increase in admission price resulted in small numbers if visits as only few people could afford to pay the price (William E. Hoover, Eloranta, Holmström, & Huttunen, 2013). The low quantity of visitors resulted to a decrease in total revenue. For the museum to increase the total revenue, the director should reduce the admission price to be cost- friendly to their clients, hence many will be able to pay for it, and eventually the total revenue will increase.
Question 3
There are different types of price elasticity of demand. In- this case, the type of elasticity is perfectly inelastic demand. . In perfectly inelastic demand, the change in price does affect the consumption of a commodity, as the consumer will maintain the quantity consumed despite a significant increase in prices. No matter the change in price of coffee, Billy will still take two cups of coffee a day (William E. Hoover, Eloran...