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Chapter 3: Q. 8 (page 78)

Does a price ceiling change the equilibrium price?

Short Answer

Expert verified

No.

Step by step solution

01

Step1. Introduction 

Price ceiling is a level of price that is legally fixed above which the producers can't charge. It is fixed below the equilibrium price.

It is generally fixed for necessity goods.

02

Step2. Explanation

As explained, price ceiling is fixed below the equilibrium price in a market legally. The equilibrium price although remains the same as it is an economic concept affected by change in market demand and supply. Though the equilibrium price can not be attained due to legally fixed price ceiling, but the equilibrium continues to be the same, though unattainable.

The exchange however now takes place at the price ceiling, with quantity supplied getting traded fully (quantity supplied < quantity demanded) and leading to an excess demand situation.

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Most popular questions from this chapter

If a price floor benefits producers, why does a price floor reduce social surplus?

Table 3.10 shows the supply and demand for movie tickets in a city. Graph demand and supply and identify the equilibrium. Then calculate in a table and graph the effect of the following two changes.

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When the price is above the equilibrium, explain

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Review Figure 3.4 again. Suppose the price of gasoline is \(1.00. Will the quantity demanded be lower or higher than at the equilibrium price of \)1.40per 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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