Multiple Choice
All of the following are problems associated with price ceilings except:
5. Consumer and Producer Surplus; Price Ceilings and Price Floors
Price Ceilings, Price Floors, and Black Markets
Struggling with Macroeconomics?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
A price ceiling will have no impact on a market if it is set
A
below last year's average price
B
above the equilibrium price
C
by knowledgeable government officials
D
below the equilibrium price
Verified step by step guidance1
Understand the concept of a price ceiling: A price ceiling is a government-imposed limit on how high a price can be charged for a product. It is intended to protect consumers from prices that are deemed too high.
Identify the equilibrium price: The equilibrium price is the price at which the quantity of a good demanded by consumers equals the quantity supplied by producers. It is the point where the supply and demand curves intersect.
Analyze the impact of a price ceiling set above the equilibrium price: If a price ceiling is set above the equilibrium price, it will have no effect on the market because the market price is already below the ceiling. The market will continue to operate at the equilibrium price.
Consider the impact of a price ceiling set below the equilibrium price: If a price ceiling is set below the equilibrium price, it will create a shortage because the quantity demanded will exceed the quantity supplied at that price. This is because the lower price increases demand while discouraging supply.
Conclude that a price ceiling will only impact the market if it is set below the equilibrium price, as this is the only scenario where it restricts the market price and causes a shortage.
Related Videos
Related Practice
Price Ceilings, Price Floors, and Black Markets practice set
Problem sets built by lead tutorsExpert video explanations