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Chapter 4: Q12 (page 104)

Select the correct answer. A price ceiling will usually shift:

a. demand

b. supply

c. both

d. neither

Short Answer

Expert verified

Price Ceiling shifts neither demand nor supply curve.

Step by step solution

01

Price Ceiling Concept 

Price Ceiling is the maximum mandated price of a commodity, fixed by regulatory body, to protect the interests of buyers and prevent them from being exploited.

Example : Maximum fixed price of medicines

02

Detailed Explanation 

Price Ceiling is just an imposed price, lower than the equilibrium price - ie where demand & supply curves intersect.

It doesn't shift either demand or supply curve, just fixes a price below their intersection point. A change in the price can cause movement along the existing demand and supply curves, but not a shift.

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Most popular questions from this chapter

Whether the product market or the labor market, what happens to the equilibrium price and quantity for each of the four possibilities: increase in demand, decrease in demand, increase in supply, and decrease in supply.

Predict how each of the following economic changes will affect the equilibrium price and quantity in the financial market for home loans. Sketch a demand and supply diagram to support your answers.

a. The number of people at the most common ages for home-buying increases.

b. People gain confidence that the economy is growing and that their jobs are secure.

c. Banks that have made home loans find that a larger number of people than they expected are not repaying those loans.

d. Because of a threat of a war, people become uncertain about their economic future.

e. The overall level of saving in the economy diminishes.

f. The federal government changes its bank regulations in a way that makes it cheaper and easier for banks to make home loans.

Imagine that to preserve the traditional way of life in small fishing villages, a government decides to impose a price floor that will guarantee all fishermen a certain price for their catch.

a. Using the demand and supply framework, predict the effects on the price, quantity demanded, and quantity supplied.

b. With the enactment of this price floor for fish, what are some of the likely unintended consequences in the market?

c. Suggest some policies other than the price floor to make it possible for small fishing villages to continue.

Suppose the U.S. economy began to grow more rapidly than other countries in the world. What would be the likely impact on U.S. financial markets as part of the global economy?

Identify each of the following as involving either demand or supply. Draw a circular flow diagram and label the flows A through F. (Some choices can be on both sides of the goods market.)

a. Households in the labor market

b. Firms in the goods market

c. Firms in the financial market

d. Households in the goods market

e. Firms in the labor market

f. Households in the financial market
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