Use data in the table below to explain the economic effects of a price ceiling at $6, at $5, and at $4
A price ceiling means that the price will not be permitted to rise above a maximum price. If the price ceiling is below the competitive equilibrium price of $7, it would produce a shortage of the product. For example, if the price ceiling was set at $6, the quantity demanded would be 5000 units and the quantity supplied would be 3500 for a shortage of 1500 units. With a price ceiling set at $5, the shortage would be 3000 units, and with a price ceiling of $4, the shortage would be 4500 units. A price ceiling interferes with the rationing function of price that serves to balance the decisions of salamanders and suppliers. The price ceiling produces a shortage that indicates that resources are being under allocated; output is not being produced because some producers cannot make a profit at the price ceiling level.
You might also like to view...
The long-run aggregate supply (LAS) curve
A) has a positive slope. B) has a negative slope. C) is vertical. D) is horizontal.
From the Keynesians' perspective, a short-run Phillips Curve exists because
A) wages and prices are perfectly flexible. B) money demand is unstable. C) investment is unstable. D) wages change more slowly than the price level.
Supplier Power Nora's Nicest Knick Knacks has produces a variety of products sold as souvenirs. She started out printing local sayings on tee-shirts, e.g., FDNY, and purchased plain tee-shirts from a single supplier. Since then, she has added coffee
mugs, key chains, souvenirs spoons and many other items. For each of these, she has lined up one or more suppliers. How does the change in the sourcing of her inputs affect how much of the value she creates that she gets to capture?
Over the last fifty years both real GDP and prices have trended upward in most countries. Continuing real GDP growth and inflation can be explained by
a. continuing technological progress alone. b. continuing increases in the money supply alone. c. continued technological progress and continuing increases in the money supply. d. None of the above can explain continuing real GDP growth and inflation.