Explain why a price ceiling, when applied to a market, inevitably generates chronic excess demand for the
2. David sells Sno-cones and uses the money earned to buy pizzas. Last year Sno-cones sold for $1 each, and
pizzas were $10 each. This year David finds that he can only charge $0.50 per Sno-cone, but that the price
of a pizza has climbed to $12.
a. If David asks the government to intervene to maintain his purchasing power, what price would the
government have to set for Sno-cones? Explain.
b. How would the new, government-imposed Sno-cone price affect the Sno-cone market?
4. Discuss this statement: “Health care is too expensive. The government should limit the prices doctors
charge so that everyone can afford health care.”
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