ECONOMICS
PRICE CEILINGS AND FLOORS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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they cause black markets to emerge
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a small group of people benefit while a large group suffers
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they create unnecessary shortages and surpluses
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they can correct allocation problems in certain markets
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Detailed explanation-1: -Answer and Explanation: The correct answer is price ceiling. A price ceiling set below the market equilibrium price causes a shortage. At a price below the market equilibrium price, quantity demanded will exceed quantity supplied.
Detailed explanation-2: -Do producers tend to favor price floors or price ceilings? Why? price floors because, when binding, price floors increase price above the equilibrium and may increase producer surplus.
Detailed explanation-3: -Price ceiling may decrease the supply demand in the market, while price floor may increase the supply demand.
Detailed explanation-4: -Price ceiling refers to the mechanism by which the price for a good is prevented from rising to a certain level. In contrast to that, price floor is the mechanism by which the price of a good is prevented from falling below a certain level.