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Chapter 3: Q.27 (page 78)

Does a price ceiling attempt to make a price higher

or lower?

Short Answer

Expert verified

Price ceiling attempts to make a price lower.

Step by step solution

01

Step 1. Concept of price ceiling.

A price ceiling is a type of price limit in which the government fixes and upper limit is when the government establishes an uppper limit on the price for a given commodity or service. This is done to make sure that corporations do not overcharge customers and can maintain a reasonable price for their items.

02

Explanation of price ceiling.

A price ceiling is an attempt by the government to keep prices low. It is mostly used to control rents. This ensures that landlords can only raise rents by a specified amount each year. Price ceilings keep prices at a fixed level, but if demand rises beyond that level, there will be a scarcity.

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Most popular questions from this chapter

Table 3.8 shows the information on the demand and supply for bicycles, where the quantities of bicycles are measured in thousands.

a. What is the quantity demanded and the quantity supplied at a price of \(210?

b. At what price is the quantity supplied equal to 48,000?

c. Graph the demand and supply curve for bicycles. How can you determine the equilibrium price and quantity from the graph? How can you determine the equilibrium price and quantity from the table? What are the equilibrium price and equilibrium quantity?

d. If the price was \)120, what would the quantities demanded and supplied be? Would a shortage or surplus exist? If so, how large would the shortage or surplus be?

What would be the impact of imposing a price floor below the equilibrium price?

We know that a change in the price of a product causes a movement along the demand curve. Suppose consumers believe that prices will be rising in the future. How will that affect demand for the product in the present? Can you show this graphically?

Why do economists use the ceteris paribus assumption?

In an analysis of the market for paint, an economist discovers the facts listed below. State whether each of these changes will affect supply or demand, and in what direction.

  1. There have recently been some important cost-saving inventions in the technology for making paint.
  2. Paint is lasting longer, so that property owners need not repaint as often.
  3. Because of severe hailstorms, many people need to repaint now.
  4. The hailstorms damaged several factories that make paint, forcing them to close down for several months.
See all solutions

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