How does a price ceiling set below the equilibrium level affect quantity demanded and quantity supplied? What would be the impact of imposing a price floor below the equilibrium price? If a price floor benefits producer, why does a price floor reduce social surplus?

Assignment 1 Questions: Week 2 to Week 3: – [15 Marks]

1. Water is necessary for life. Is the marginal benefit of a glass of water large or small? Give an example of some action from your real life that has both a monetary and non monetary opportunity cost. (3 Mark)
2. What does the “invisible hand” of the marketplace do? Explain the two main reasons of market failure and give an example of each. (3 Marks)
3. How does a price ceiling set below the equilibrium level affect quantity demanded and quantity supplied? (3 Marks)
4. What would be the impact of imposing a price floor below the equilibrium price? If a price floor benefits producer, why does a price floor reduce social surplus? (3 Marks)

• Illustrates the market for Pizza has the following demand and supply

schedules: (3 Marks)

1. Graph the demand and supply curves. What is the equilibrium price and quantity in this market?
2. If the actual price in this market were above the equilibrium price, what would drive the market toward the equilibrium?
3. If the actual price in this market were below the equilibrium price, what would drive the market toward the equilibrium?