Supply and Demand Concepts - Assignment Example

The price floor of 16 create a surplus of 4000 in the tablet market. Price floor alters the forces of demand and supply in the market (Bhaskar, 1997). In a natural case, the tablet would be selling at 12, but the price floor of 16 prompt the producer to produce more due to the high return expected in the market. On the other hand, consumer would be hesitant to buy at 16 thus, making the market have a surplus of 4000. Price ceiling is maximum price set for a specific good to help the citizen afford at a considerable price lower than the market value.

In the tablet market, market price ceiling will create a shortage in the market as a supplier would not be willing to supply a tablet at a price lower than the market price. For this case where price ceiling is set at price $8, the market will experience a shortage of 4000 tablets. The purpose of price ceiling is to bring equity among all customers. A drop in price for the tablet by 50% would alter the market equilibrium. People will demand more tablet than before and the supply for the same will decrease as the prices drops from $12 to $6.

The ultimate impact is a downward shift in the demand curve. The market for tablet will have more demand than the supply of table. This scenario is what is referred to as shortage in the market. In cases, all thing are kept constant when price decreases; the market will have to endure with shortages of tablet as the demand will not be met by the available supply. However, according to the laws of demand a reduction in price dictate that the quantity supplied would also reduce. Thus, the supply curve shift to the left and the market will return to the equilibrium price.

An increase in income for the tablet consumer would shift the demand curve to the right (other thing constant). Increase in customer’s income leaves them with extra money after their other expenditure to buy tablets and thus increase the demand for tablet. However, because the market for tablet is free