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Chapter 3: Q.27 (page 78)

Does a price ceiling attempt to make a price higher

or lower?

Short Answer

Expert verified

Price ceiling attempts to make a price lower.

Step by step solution

01

Step 1. Concept of price ceiling.

A price ceiling is a type of price limit in which the government fixes and upper limit is when the government establishes an uppper limit on the price for a given commodity or service. This is done to make sure that corporations do not overcharge customers and can maintain a reasonable price for their items.

02

Explanation of price ceiling.

A price ceiling is an attempt by the government to keep prices low. It is mostly used to control rents. This ensures that landlords can only raise rents by a specified amount each year. Price ceilings keep prices at a fixed level, but if demand rises beyond that level, there will be a scarcity.

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Most popular questions from this chapter

What term would an economist use to describe

what happens when a shopper gets a “good deal” on a

product?

What is the effect of a price ceiling on the quantity demanded of the product? What is the effect of a price ceiling on the quantity supplied? Why exactly does a price ceiling cause a shortage?

Consider the demand for hamburgers. If the price of a substitute good (for example, hot dogs) increases and the price of a complement good (for example, hamburger buns) increases, can you tell for sure what will happen to the demand for hamburgers? Why or why not? Illustrate your answer with a graph.

We know that a change in the price of a product causes a movement along the demand curve. Suppose consumers believe that prices will be rising in the future. How will that affect demand for the product in the present? Can you show this graphically?

How can you locate the equilibrium point on a demand and supply graph?
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