Table of contents

1. Introduction to Macroeconomics1h 57m
2. Introductory Economic Models59m
3. Supply and Demand3h 43m
4. Elasticity2h 26m
5. Consumer and Producer Surplus; Price Ceilings and Price Floors3h 40m
6. Introduction to Taxes1h 25m
7. Externalities1h 3m
8. The Types of Goods1h 13m
9. International Trade1h 16m
10. Introducing Economic Concepts49m
11. Gross Domestic Product (GDP) and Consumer Price Index (CPI)1h 37m
12. Unemployment and Inflation1h 15m
13. Productivity and Economic Growth1h 17m
14. The Financial System1h 37m
15. Income and Consumption52m
16. Deriving the Aggregate Expenditures Model1h 22m
17. Aggregate Demand and Aggregate Supply Analysis1h 18m
18. The Monetary System1h 1m
19. Monetary Policy1h 32m
20. Fiscal Policy1h 0m
21. Revisiting Inflation, Unemployment, and Policy46m
22. Balance of Payments30m
23. Exchange Rates1h 16m
24. Macroeconomic Schools of Thought40m
25. Dynamic AD/AS Model35m
26. Special Topics11m

5. Consumer and Producer Surplus; Price Ceilings and Price Floors

Price Ceilings, Price Floors, and Black Markets

Macroeconomics

5. Consumer and Producer Surplus; Price Ceilings and Price Floors

Price Ceilings, Price Floors, and Black Markets

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Multiple Choice

Which of the following statements regarding the expected effects of a price control imposed on a competitive market is false?

A price floor above the competitive equilibrium price will result in a surplus.

A price ceiling above the competitive equilibrium price will result in a surplus.

A price ceiling below the competitive equilibrium price will result in a shortage.

A nonbinding price floor will result in a quantity exchanged that is equal to the equilibrium quantity

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Verified step by step guidance

Understand the concept of price controls: Price controls are government-imposed limits on the prices that can be charged for goods and services in a market. They come in two forms: price ceilings and price floors.

Define a price ceiling: A price ceiling is a maximum price set by the government, which sellers cannot exceed. It is typically set below the equilibrium price to be effective, leading to a shortage as demand exceeds supply.

Define a price floor: A price floor is a minimum price set by the government, which buyers must pay. It is typically set above the equilibrium price to be effective, leading to a surplus as supply exceeds demand.

Analyze the statement 'A price ceiling above the competitive equilibrium price will result in a surplus': A price ceiling set above the equilibrium price is nonbinding, meaning it does not affect the market. The market will operate at the equilibrium price and quantity, so no surplus occurs.

Evaluate the other statements: A price floor above the equilibrium price results in a surplus, a price ceiling below the equilibrium price results in a shortage, and a nonbinding price floor does not affect the equilibrium quantity. These statements are true, confirming the falsehood of the statement about a price ceiling above the equilibrium price.