Question

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

Short answer

Both price floors and price ceilings decrease the quantity of transactions, resulting in lower social surplus.

Step-by-step solution

Step 1. Define price ceiling.

A price ceiling is refers to a legal maximum price, but as long as the equilibrium price is lower than the former, the market will choose it.

Does having a price ceiling and a price floor in a market boost or decrease the number of transactions? Why?

If consumers stick to the price ceiling, the market price will be below equilibrium, implying that quantity demanded will be greater than quantity supplied. Because buyers can only buy what is on the market, the number of transactions will be limited to quantity supplied. Graphically, this is easy to see. By analogy, with a price floor, the market price will be higher than the equilibrium price, resulting in quantity demanded being lower than quantity supplied. Because demand is the transaction limit, the number of transactions will be limited to quantity demanded. It's worth noting that both price floors and price ceilings decrease the quantity of transactions, resulting in lower social surplus.