What occurs if a price floor is set above the equilibrium price? What occurs if a price ceiling is set below the equilibrium price?
What will be an ideal response?
A price floor set above the equilibrium price will result in a surplus of the product. Because the price floor is above the equilibrium price, the price rises above the equilibrium value. With the higher price, the quantity supplied increases and the quantity demanded decreases. At the floor price, the quantity supplied exceeds the quantity demanded and hence a surplus is the outcome.
A price ceiling set below the equilibrium price also affects the market. The price ceiling is below the equilibrium price, so the price falls, from what it was at its equilibrium, to the ceiling amount. The fall in price increases the quantity demanded and decreases the quantity supplied. As a result, at the price equal to the ceiling floor, the quantity demanded exceeds the quantity supplied and hence there is a shortage.
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Economic progress
A) reflects that people are achieving higher income levels and living standards. B) requires that individuals work longer hours. C) indicates that scarcity is no longer a problem. D) indicates income levels are higher even though environmental and health conditions have worsened.
The concepts of comparative advantage, specialization, and trade form a compelling argument in favor of:
A. self-sufficiency. B. protectionism. C. only exporting goods and not importing goods. D. free trade.
A 3 percent increase in the price of tea causes a 6 percent increase in the demand for coffee. The cross elasticity of demand for coffee with respect to the price of tea is:
A. -0.5 B. +0.5 C. -2.0 D. +2.0
The return received by the owners of capital is called the ________________________.
Fill in the blank(s) with the appropriate word(s).