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Chapter 3: Problem 27

Does a price ceiling attempt to make a price higher or lower?

Short Answer

Expert verified
A price ceiling attempts to make a price lower in order to protect consumers and make essential goods and services more affordable.

Step by step solution

01

Define Price Ceiling

A price ceiling is a government-imposed limit on how high a price can be charged for a product or service. It is typically enforced above the equilibrium price in a market to ensure that prices stay below a certain level.
02

Purpose of Price Ceiling

The purpose of a price ceiling is to protect consumers from certain situations where market prices may be too high for essential goods and services. For example, in times of high demand or limited supply, some suppliers might raise their prices beyond what some consumers can afford. By imposing a price ceiling, the government tries to make these essential goods and services more affordable.
03

Effect of Price Ceiling

If the price ceiling is imposed below the equilibrium price, it tends to create a shortage, as the quantity supplied by producers is less than the quantity demanded by consumers. However, it may benefit some consumers, as the lower price allows them to purchase the product or service. So, the answer to the question is:
04

Price Ceiling Attempt

A price ceiling attempts to make a price lower in order to protect consumers and make essential goods and services more affordable.

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Most popular questions from this chapter

Table 3.9 illustrates the market's demand and supply for cheddar cheese. Graph the data and find the equilibrium. Next, create a table showing the change in quantity demanded or quantity supplied, and a graph of the new equilibrium, in each of the following situations: a. The price of milk, a key input for cheese production, rises, so that the supply decreases by 80 pounds at every price. b. A new study says that eating cheese is good for your health, so that demand increases by \(20 \%\) at every price. \begin{array}{l|l|l} \hline {\text { Price per Pound }} & {\text { Qd }} & {\text { Qs }} \\ \hline \$ 3.00 & 750 & 540 \\ \hline \$ 3.20 & 700 & 600 \\ \hline \$ 3.40 & 650 & 650 \\ \hline \$ 3.60 & 620 & 700 \\ \hline \$ 3.80 & 600 & 720 \\ \hline \$ 4.00 & 590 & 730 \\ \hline \end{array}

A low-income country decides to set a price ceiling on bread so it can make sure that bread is affordable to the poor. Table 3.11 provides the conditions of demand and supply. What are the equilibrium price and equilibrium quantity before the price ceiling? What will the excess demand or the shortage (that is, quantity demanded minus quantity supplied) be if the price ceiling is set at \(\$ 2.40 ?\) At \(\$ 2.00 ?\) At \(\$ 3.60 ?\) $$\begin{array}{|l|l|l|} \hline {\text { Price }} & {\text { Qd }} & {\text { Qs }} \\ \hline \$ 1.60 & 9,000 & 5,000 \\ \hline \$ 2.00 & 8,500 & 5,500 \\ \hline \$ 2.40 & 8,000 & 6,400 \\ \hline \$ 2.80 & 7,500 & 7,500 \\ \hline \$ 3.20 & 7,000 & 9,000 \\ \hline \$ 3.60 & 6,500 & 11,000 \\ \hline \$ 4.00 & 6,000 & 15,000 \\ \hline \end{array}$$

Why do economists use the ceteris paribus assumption?

What term would an economist use to describe what happens when a shopper gets a "good deal" on a product?

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