Law of Demand and Supply, and Price Ceilings

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Last Name: Rauf
First Name & Middle Initial(S): Rabia I.
Student ID Number: g00030185
Course And Section Number: Eco 202 – 05

News Report Activity

Article Title: Price to Fall Next Month
Article Publication Date: Monday, 15 December 2008
Source: Khaleej Times
Economic Concept(S): Law of Demand and Supply and Price Ceilings. The article discusses how the costs of various commodities are going to be reduced at the start of the New Year. This is going to increase the quantity demanded of these commodities, according to the Law of Demand. . The Law of Demand states that an increase in price level, will lead to a decrease in the quantity demanded, ceteris paribus. At the same time, a decrease in world oil prices has reduced costs of production and transportation for many trading countries, giving them an incentive to increase their supply. Article Analysis

The article initially mentions that the expected fall in the prices of “daily-use” goods is approximately 25%. In order to achieve this target, the Ministry has succeeded in convincing major retailers to reduce the prices of the goods that are now going to be imported. Prices of numerous goods have declined in “exporting countries,” as a result of a gradual fall in oil prices globally. If the current stocks are not cleared off the market, their prices are also going to be reduced even though they were originally traded in at a higher price. This level of reduction in prices is going to have a great impact on the quantity demanded of these goods. The article gives basmati rice as an example of a commodity that has faced price reduction. The price of a 5kg basmati rice bag has gone down from AED 50 to AED 45. The following graph shows the affects of a decrease in price of Basmati Rice on the quantity demanded of Basmati rice: D

Qty. Demanded of Basmati rice

As illustrated by the graph, a fall in the price of the Basmati Rice is going to increase the...
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