Assume that books were sold in a perfectly competitive market. In response to consumer complaints about the high price of books, the government imposes a binding (effective) price ceiling.
a. In order to be effective, where must the price ceiling be set?
b. Using standard demand and supply analysis, graphically illustrate the impact of the price ceiling on the number of books purchased.
c. Identify the change in consumer surplus from the price ceiling. (Ignore the possibility of a black market.)
d. Will the price ceiling cause consumer expenditure on books to increase or decrease? Explain