There should be 63 workers in the factory in Bulawayo. But instead the managing director stands alone in a deserted production room. Under President Robert Mugabe's price control programme, his customers cannot cover the cost of their goods, so they have stopped placing orders. "They simply can't sell, otherwise they are going to make a massive loss," said the businessman. "Every millilitre we would produce we would produce at a huge loss." The factory is a stark demonstration of what happens when economics are ignored. It is a basic principle of markets that price is determined by supply and demand. If an outside agency, such as the ideologically Marxist Zanu-PF government, instead sets the price too low, suppliers will not produce - hence the empty shelves in Zimbabwe's supermarkets.
(i) Suppose you estimated that the demand for the product that the factory in Bulawayo produces is given by P=100-5Qd, while the supply is P=40+Qs. find out the equilibrium price and quantity and illustrate your answers graphically.
(ii) Suppose the price control is set at P=$45. Find the new quantity that would be available for sale. Illustrate the price control, new quantity demanded and supplied on your graph in part (i).
(iii) Given the article, what must have been the maximum controlled price allowed? describe. Illustrate this price on your graph in part (i) as well.
(iv) Discuss why a government may want to impose price control. But in this case, does the Mugabe government achieve its intended purpose? describe.