ECONOMICS
PRICE CEILINGS AND FLOORS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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consumer surplus increases.
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consumer surplus decreases.
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consumer surplus unchanged.
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Indeterminate with the given information.
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Detailed explanation-1: -If the government forced all bread manufacturers to sell their products at a “fair price” that was half the current, free-market price, what would happen to the quantity supplied of bread? The quantity supplied will fall.
Detailed explanation-2: -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-3: -By letting the price rise. This encourages demanders to demand less and suppliers to supply more, ending the shortage.
Detailed explanation-4: -Producer surplus is the amount that producers benefit by selling at a market price that is higher than the least they would be willing to sell for. An effective price floor will raise the price of a good, which means that the the consumer surplus will decrease.
Detailed explanation-5: -They are a form of price control. While in the short run, they often benefit consumers, the long-term effects of price ceilings are complex. They can negatively impact producers and sometimes even the consumers they aim to help, by causing supply shortages and a decline in the quality of goods and services.