The effect of imposing a
Explanation of Solution
When there is a
When there is a price ceiling imposed, it causes a shortage as the price is now set at a level below the equilibrium and lot of producers do not want to supply at this price level and thus, it leads to a shortage.
An example of a price ceiling is if the government puts a price ceiling for apartments at $2000 when the market has reached an equilibrium at $3000, then the maximum price at which apartments can be sold is $2000. Due of this, producers willing to supply between $2000-$3000 will now not supply as the price is too low. This causes a shortage.
Concept Introduction:
Price Ceiling- It refers to the price set by the government when the
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Chapter 6 Solutions
Principles of Economics (Second Edition)
- Steve decides not to rent out his second home since he is not allowed to set the rate above $1000 per month even though he knows he could find renters willing to pay much more. Would this be an example of a price ceiling or a black market?arrow_forwardA price ceiling is intended to benefit which group of people? consumers producers The Governmentarrow_forwardWhat can cause a price ceiling to become nonbinding?arrow_forward
- A government decides to set a price ceiling on bread so that bread is affordable to the poor. The conditions of demand and supply are given in the table below. What is the equilibrium price before the price ceiling? What will the excess supply or the shortage be if the price ceiling is set at $2.40? Price Qd Qs $1.60 9,000 5,000 $2.00 8,500 5,500 $2.40 8,000 6,400 $2.80 7,500 7,500 $3.20 7,000 9,000 $3.60 6,500 11,000 $4.00 6,000 15,000 A. $2.80; 1,600 shortage B. $2.80; 1,600 excess supply C. $2.40; 1,600 shortagearrow_forwardThe imosition of a price ceiling on a market will result inarrow_forwardA nation with a low income chooses to set a price ceiling on bread to guarantee that it is affordable for the poor. The table below shows the supply and demand parameters. Before the price ceiling, what were the equilibrium price and equilibrium quantity? If the price ceiling is set at $2.40 what would the excess demand or the shortage (quantity demanded minus quantity supplied) be? What about at $2.00? Or at $3.60? Draw graphs to present your solutions. Price M༔TM ༥་༥ ༧༥FF, ༔vi Qd Qs $1.60 9,000 5,000 $2.00 8,500 5,500 $2.40 8,000 6,400 $2.80 7,500 7,500 $3.20 7,000 9,000 $3.60 6,500 11,000 $4.00 6,000 15,000arrow_forward
- Does a price ceiling attempt to make a price higher or lower?arrow_forwardA government decides to set a price ceiling on eggs so that eggs are affordable to the poor. The conditions of demand and supply are given in the table below. What will the excess supply or the shortage be if the price ceiling is set at $2.00? Price Qd Qs $1.60 9,000 5,000 $2.00 8,500 5,500 $2.40 8,000 6,400 $2.80 7,500 7,500 $3.20 7,000 9,000 $3.60 6,500 11,000 $4.00 6,000 15,000 Question 50 options: a) 8,500 excess supply. b) 3,000 excess supply. c) 1,500 shortage. d) 3,000 shortage.arrow_forwardA price ceiling is only effective if it is above the market equilibrium. True Falsearrow_forward
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning