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Chapter 3: Q 8. (page 78)

Does a price ceiling change the equilibrium price?

Short Answer

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Step by step solution

01

Step 1. Define price ceiling.

A price ceiling is the most a producer can charge for a product or service. This is frequently required by the government to ensure that consumers can afford the goods and services in demand.

02

Step 2. Is it true that a price ceiling affects the equilibrium price?

A pricing ceiling is nothing more than a legal limit. The term "equilibrium" refers to the state of affairs in the economy. People may or may not follow the price ceiling, thus the actual price may be at or above it, but the price ceiling has no effect on the equilibrium price.

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Most popular questions from this chapter

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?

Will demand curves have the same exact shape in all markets? If not, how will they differ?

Explain why the following statement is false: “In the goods market, no buyer would be willing to pay more than the equilibrium price.”

If a price floor benefits producers, why does a price floor reduce social surplus?

A low-income country decides to set a price ceiling on bread so it can make sure that bread is affordable to the poor. Table 3.11 provides the conditions of demand and supply. What are the equilibrium price and equilibrium quantity before the price ceiling? What will the excess demand or the shortage (that is, quantity demanded minus quantity supplied) be if the price ceiling is set at \(2.40? At \)2.00? At $3.60?
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