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Chapter 3: Q 8. (page 78)

Does a price ceiling change the equilibrium price?

Short Answer

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1

Step by step solution

01

Step 1. Define price ceiling.

A price ceiling is the most a producer can charge for a product or service. This is frequently required by the government to ensure that consumers can afford the goods and services in demand.

02

Step 2. Is it true that a price ceiling affects the equilibrium price?

A pricing ceiling is nothing more than a legal limit. The term "equilibrium" refers to the state of affairs in the economy. People may or may not follow the price ceiling, thus the actual price may be at or above it, but the price ceiling has no effect on the equilibrium price.

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Most popular questions from this chapter

Suppose there is a soda tax to curb obesity. What should a reduction in the soda tax do to the supply of sodas and to the equilibrium price and quantity? Can you show this graphically? Hint: Assume that the soda tax is collected from the sellers.

If the price is above the equilibrium level, would you predict a surplus or a shortage? If the price is below the equilibrium level, would you predict a surplus or a shortage? Why?

Use the four-step process to analyze the impact of the advent of the iPod (or other portable digital music players) on the equilibrium price and quantity of the Sony Walkman (or other portable audio cassette players).

Name some factors that can cause a shift in the supply curve in markets for goods and services.

Review Figure 3.4 again. Suppose the price of gasoline is \(1.00. Will the quantity demanded to be lower or higher than at the equilibrium price of \)1.40 per gallon? Will the quantity supplied be lower or higher? Is there a shortage or a surplus in the market? If so, of how much?
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