QuestionCalculate the shortage in bottled water when a price ceiling of \$6 per gallon is set. Use the given supply and demand data.

Studdy Solution

STEP 1

Assumptions1. The price ceiling is set at $6.00 per gallon. The price ceiling is a maximum allowable price set by law, above which the product cannot be sold3. The quantity supplied and quantity demanded at each price level is given in the table4. The shortage is calculated as the difference between the quantity demanded and the quantity supplied at the price ceiling

STEP 2

First, we need to find the quantity supplied and the quantity demanded at the price ceiling. We can do this by looking at the table.
At a price of $6.00, the quantity supplied is2,100 gallons and the quantity demanded is4,800 gallons.

STEP 3

Now, we can calculate the shortage caused by the price ceiling. The shortage is the amount by which the quantity demanded exceeds the quantity supplied at the price ceiling.
$Shortage = Quantity\, Demanded - Quantity\, Supplied$

STEP 4

Plug in the values for the quantity demanded and the quantity supplied at the price ceiling to calculate the shortage.
$Shortage =4,800 -2,100$

STEP 5

Calculate the shortage caused by the price ceiling.
$Shortage =4,800 -2,100 =2,700$ The shortage caused by the price ceiling is2,700 gallons.

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