ECONOMICS
PRICE CEILINGS AND FLOORS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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surplus
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shortage
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equilibrium price
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subsidy
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Detailed explanation-1: -A price below equilibrium creates a shortage. Quantity supplied (550) is less than quantity demanded (700). Or, to put it in words, the amount that producers want to sell is less than the amount that consumers want to buy. We call this a situation of excess demand (since Qd > Qs) or a shortage.
Detailed explanation-2: -If a shortage exists, price must rise in order to entice additional supply and reduce quantity demanded until the shortage is eliminated.
Detailed explanation-3: -Shortage Causes Decrease in supply (inward shift in supply curve): For example, an unexpected freeze results in the destruction of orange crops leading to a drastic reduction in the supply of orange juice. Government intervention: Shortages can also be the result of government-imposed price ceilings.
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: -Economists call this an “excess demand” – the quantity demanded is greater than the quantity supplied at the given price. This is also called a shortage. EXCESS SUPPLY. Now, sellers don’t like the idea of $1.00 per week at all.