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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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