The effect of imposing a
Explanation of Solution
When there is a price ceiling, we see that the price is set below the equilibrium level. This is because the market has achieved equilibrium at a very high price.
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)
- if the price ceiling of a good is set AT the Equalibrium Price, is it non binding?arrow_forwardExplain how a price ceiling leads to excess demand or market shortage. Use adiagram to motivate your answer.arrow_forwardWhat will a price ceiling always create? Shortage surplus a clear marketarrow_forward
- Draw a diagram showing the market for generators with an equilibrium price at $250. Now impose a price ceiling at $200 per generator. What would be the impact of the price ceiling on the quantity demanded? On the quantity supplied? Who would benefit from the price ceiling and who would be harmed? Let the graph guide your thinking. Don’t start with your gut reaction! Did the price ceiling help the people it was designed to help? Explain the economic reasoning behind your analysis.arrow_forwardUse suitable examples to explain the likely effects of a price ceiling.arrow_forwardWhat does each part of the graph stand for? Assume that a local government imposes a price ceiling of $8, how many units will be excessively supplied/demanded?arrow_forward
- 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_forwardWhat is the definition of a price ceiling? How can a free-market eliminate shortages?arrow_forwardA price ceiling is intended to benefit which group of people? consumers producers The Governmentarrow_forward
