Final answer:
A price ceiling is when the government sets a maximum price below the equilibrium market price, which can lead to shortages. A price floor set substantially above the equilibrium price results in surpluses.
Step-by-step explanation:
An example of a price ceiling would be the government setting the price of sugar C) below the equilibrium market price. This intervention is typically enacted to make essential goods more affordable for consumers, but it can lead to shortages if the price is set too low compared to the equilibrium price where demand meets supply.
A price ceiling will have the largest effect if it is set substantially below the equilibrium price. In contrast, a price ceiling set at or above the equilibrium price would not impact the market. On a demand and supply diagram, a price ceiling below the equilibrium creates excess demand, illustrated by the quantity demanded at the ceiling price being greater than the quantity supplied.
For the question about a price floor, an analogous system used to ensure prices do not fall below a certain level, it will have the largest effect when set substantially above the equilibrium price, leading to surpluses where the quantity supplied at the floor price exceeds the quantity demanded.