ECONOMICS
PRICE CEILINGS AND FLOORS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Quantity demanded
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Quantity supplied.
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Indeterminate with the given information.
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Neither
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Detailed explanation-1: -The ceiling price is binding and causes the equilibrium quantity to change – quantity demanded increases while quantity supplied decreases.
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: -The government-imposed lower limit on the price that may be charged for a particular good or service is called price floor. For certain goods and services, fall in price below a particular level is not desirable and hence the government sets floors or minimum prices for these goods and services.
Detailed explanation-4: -Both price floors and price ceilings decrease the quantity of transactions, resulting in lower social surplus.
Detailed explanation-5: -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.