Question

Suppose that after pork prices rise dramatically, voters demand that the government place price controls on
bacon.
Identify the specific type of price control the government would use, and explain its impact on the equilibrium bacon price.
Write 3-4 sentences

Answer 1

In response to rising pork prices and voter demand, the government would likely implement a price ceiling on bacon. A price ceiling is a maximum limit on the price that can be charged for a good, intended to make it more affordable for consumers. By setting a price ceiling below the equilibrium price, the equilibrium bacon price would decrease, leading to a higher quantity demanded but a lower quantity supplied. This situation can create a shortage of bacon, as producers may reduce production due to lower prices, while consumers demand more than what is available in the market.