Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 3: Q. 10 (page 78)

Does a price ceiling increase or decrease the number of transactions in a market? Why? What about a price floor?

Short Answer

Expert verified

Transactions will decrease in both the cases.

Step by step solution

01

Part(a)Step1. Concept 

Price ceiling is fixed below the equilibrium price to ensure the prices do not exceed the fixed level through government intervention.

02

Part (a)Step2. Explanation

When the prices are fixed below the equilibrium level, the quantity supplied in the market at this price ceiling will be less as compared to at equilibrium level. This implies that the number of transactions will now reduce and hence equate to the quantity supplied at the price ceiling level.

03

Part(b)Step1. Concept

Price floor is fixed above the equilibrium level when the equilibrium price is low and hence a minimum level through government intervention is needed to be ensured.

04

Part(b)Step2. Explanation

When the prices are fixed above the equilibrium level, the demand will fall as compared to at the equilibrium price. This implies that the number of transactions will now reduce due to low demand and hence equate to the quantity demanded at the price floor level.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

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.

What is the difference between the demand and the

quantity demanded of a product, say milk? Explain in

words and show the difference on a graph with a demand

curve for milk.

Table 3.10 shows the supply and demand for movie tickets in a city. Graph demand and supply and identify the equilibrium. Then calculate in a table and graph the effect of the following two changes.

(a) Three new nightclubs open. They offer decent bands and have no cover charge, but make their money by selling food and drink. As a result, demand for movie tickets falls by six units at every price.

(b) The city eliminates a tax that it placed on all local entertainment businesses. The result is that the quantity supplied of movies at any given price increases by 10%.

Price per poundQdQs
\(5.002616
\)6.002418
\(7.002220
\)8.002121
$9.002022

When the price is above the equilibrium, explain

how market forces move the market price to

equilibrium. Do the same when the price is below the

equilibrium.

Explain why voluntary transactions improve social welfare.
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free