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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

Predict how each of the following events will raise or lower the equilibrium wage and quantity of oil workers in Texas. In each case, sketch a demand and supply diagram to illustrate your answer.

a. The price of oil rises.

b. New oil-drilling equipment is invented that is cheap and requires few workers to run.

c. Several major companies that do not drill oil open factories in Texas, offering many well-paid jobs outside the oil industry.

d. Government imposes costly new regulations to make oil-drilling a safer job.

Name some factors that can cause a shift in the

supply curve in labor markets.

What is the “price” commonly called in the labor

market?

Suppose that a 5% increase in the minimum wage causes a 5% reduction in employment. How would this affect employers and how would it affect workers? In

your opinion, would this be a good policy?

In the financial market, what causes a movement along the supply curve? What causes a shift in the supply curve?
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