Understanding Price Controls

What is a price ceiling?

• The lowest legal price that can be charged for a good or service

• The highest legal price that can be charged for a good or service

• The average market price for a good or service

• The price at which supply equals demand

What is a price floor?

• The highest legal price that can be charged for a good or service

• The lowest legal price that can be charged for a good or service

• The price at which supply equals demand

• The average market price for a good or service

Which of the following is an example of a price ceiling?

• Minimum wage laws

• Rent control in cities

• Agricultural price supports

• Sales tax

Which of the following is an example of a price floor?

• Rent control

• Price gouging laws

• Minimum wage

• Price caps on gasoline

What is the likely effect of a price ceiling set below the equilibrium price?

• Surplus

• Shortage

• No effect

• Increase in supply

What is the likely effect of a price floor set above the equilibrium price?

• Shortage

• Surplus

• No effect

• Decrease in demand

If the government sets a price ceiling on bread, what might happen to the quantity supplied?

• It will increase

• It will decrease

• It will stay the same

• It will double

How does a price floor affect the market for agricultural products if set above equilibrium?

• It causes a shortage of products

• It causes a surplus of products

• It has no effect

• It lowers the price

Which of the following best describes the impact of a price ceiling on consumer behavior?

• Consumers buy less because prices are higher

• Consumers buy more because prices are lower

• Consumers are unaffected

• Consumers stop buying the product

A city government sets a maximum price for apartment rent that is below the market equilibrium. What is a likely result?

• More apartments will be available

• Fewer apartments will be available, leading to a shortage

• The quality of apartments will improve

• No change in the rental market