Price Ceiling and Price Floor

Suppose the government sets a price ceiling of $80. How large will the shortage be?

• 5 million coats

• 4 million coats

• 3 million coats

• 2 million coats

When a price ceiling is in place keeping the price below the market price, what’s larger: quantity demanded or quantity supplied?

• Quantity demanded

• Quantity supplied.

• Indeterminate with the given information.

• Neither

Suppose again that the government sets a price ceiling of $80 and that people line up to get this good. For how long will people wait in line to obtain a coat if they value their time at $10 an hour?

• 2 hours

• 3 hours

• 4 hours

• neither

A review of the jargon: Is the minimum wage a “price ceiling” or a “price floor?

• price ceiling

• price floor

A _______________ is a maximum price sellers are allowed to charge for a good. It's an upper limit for the price.

• Equilibrium

• Shortage

• Surplus

• Price ceiling

Price controls are

• Market forces that move a market to equilibrium

• Legally mandated maximum or minimum prices for a good or service

• Limits on the amount a company is allowed to produce

• Limits on the amount a consumer is allowed to purchase

Market: Iphones

Equilibrium Price: $1,000

Gov't sets max price of $200

Result?

• Shortage

• Surplus

Market: Milk

Equilibrium Price: $2

Gov't sets min price of $5

Result?

• Shortage

• Surplus

Which of the following will occur if a legal price floor is placed on a good below its free-market equilibrium?

• surpluses will develop

• shortages will develop

• underground markets will develop

• the equilibrium price will ration the good

• the quantity sold will increase

A review of the jargon: Is rent control a “price ceiling” or a “price floor?”

• price ceiling

• price floor