ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -When a price floor is set above the equilibrium price, the quantity supplied will exceed the quantity demanded, and excess supply or surpluses will result. The Shortage of the commodity and black marketing economy drives out legitimate industries that can’t compete with the lower costs of illegal operations.

Detailed explanation-2: -Case 2: The price ceiling is above the equilibrium price. In this case, there will be an overproduction of the quantity supplied, and a lower willingness to pay from consumers. This decreases the economic surplus and creates deadweight loss.

Detailed explanation-3: -When a price ceiling is set below the equilibrium price, quantity demanded will exceed quantity supplied, and excess demand or shortages will result. Price floors prevent a price from falling below a certain level.

Detailed explanation-4: -A surplus exists when the price is above equilibrium, which encourages sellers to lower their prices to eliminate the surplus. A shortage will exist at any price below equilibrium, which leads to the price of the good increasing.

Detailed explanation-5: -Why exactly does a price ceiling cause a shortage? A price ceiling (which is below the equilibrium price) will cause the quantity demanded to rise and the quantity supplied to fall. This is why a price ceiling creates a shortage.