Asked by Khadija Arain on Jun 17, 2024
Verified
Statement I: A price floor will always have an effect on a market.
Statement II: A price ceiling which has been set above equilibrium will cause a shortage.
A) Statement I is true and statement II is false.
B) Statement II is true and statement I is false.
C) Both statements are true.
D) Both statements are false.
Price Floor
A government or group-imposed limit on how low a price can be charged for a product, usually above the equilibrium price, to protect producers.
Price Ceiling
A government-imposed limit on how high a price can be charged for a product, service, or commodity, intended to protect consumers from high prices.
Equilibrium
A state in a market where supply equals demand, with the selling price of goods remaining constant as long as other variables remain unchanged.
- Gain insight into how market equilibrium is affected by government actions including price floors and ceilings.
- Acquire knowledge on the economic logic guiding government regulations in markets, including both their foreseen and unforeseen consequences.
Verified Answer
CR
Christal RhodemanJun 22, 2024
Final Answer :
D
Explanation :
Statement I is false because a price floor will only have an effect if it is set above the equilibrium price, otherwise, it is non-binding and does not affect the market. Statement II is false because a price ceiling set above equilibrium will not cause a shortage; it is non-binding and has no effect. Shortages occur when a price ceiling is set below the equilibrium price.
Learning Objectives
- Gain insight into how market equilibrium is affected by government actions including price floors and ceilings.
- Acquire knowledge on the economic logic guiding government regulations in markets, including both their foreseen and unforeseen consequences.