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Author Question: In order for a price ceiling to have an effect on the market, must it be set above or below the ... (Read 45 times)

LCritchfi

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on: Jun 29, 2018
In order for a price ceiling to have an effect on the market, must it be set above or below the equilibrium price? Why?
 
  What will be an ideal response?

Question 2

Of the following items, which has the most inelastic demand?
 
  A) food
  B) fruit
  C) apples
  D) Gala apples


dellikani2015

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Reply #1 on: Jun 29, 2018
Answer to Question 1

In order to have an effect, the price ceiling must make the equilibrium price illegal and so it must be set below the equilibrium price. A price ceiling is the highest price that can legally be charged for the product. If it is set above the equilibrium price, the equilibrium price is less than the ceiling price and hence is legal. Therefore the price and the quantity are not affected. However if the ceiling price is less than the equilibrium price, the equilibrium price becomes illegal. As a result, the price ceiling will have an impact on the market by lowering the price. With the lower price, the quantity demanded increases while the quantity supplied decreases so that a shortage of the product emerges.

Answer to Question 2

A


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