Reference no: EM133377877

In 2014, a major ice storm hit parts of the southeastern US. The storm brought down power lines and trees, cutting electricity in many areas. Heating homes became a major challenge similar to the winter storm that hit Texas in 2021. The storm created shortages of power generators. As a result, those products were selling at prices much higher than normal. These high prices provoked cries of "price gouging" and calls on the government to impose price controls to prevent gouging. While no one likes to pay a higher price than normal for something, consider what would have happened with a price ceiling. The economic intuition may be revealing.

Draw a diagram showing the market for generators with an equilibrium price at $750. Now impose a price ceiling at $500 per generator. What would be the impact of the price ceiling on the quantity demanded? On the quantity supplied? Who would benefit from the price ceiling and who would be harmed? Let the graph guide your thinking. Don't start with your gut reaction. Did the price ceiling help the people it was designed to help? Explain the economic reasoning behind your analysis.