Final answer:
In a free market system, price controls can include both floor and ceiling. Price ceilings set a maximum price, while price floors set a minimum price. Price controls are used by governments to regulate prices and can impact supply, demand, and market equilibrium.
Step-by-step explanation:
In a free market system, price controls can include both floor and ceiling. A price ceiling sets the maximum price that a good or service can be sold for, while a price floor sets a minimum price that must be met. Price controls are used by governments to regulate prices and can have various effects on supply, demand, and market equilibrium. For example, let's consider a price ceiling on rental apartments. If the government imposes a maximum rent price, it may benefit renters who can secure housing at a lower cost.
However, this can also lead to a shortage of available apartments as the market price cannot rise to its equilibrium level. Landlords may choose to offer fewer rentals due to the decreased profitability, and quality may also suffer. On the other hand, a price floor can be seen in the form of a minimum wage. This sets a legal minimum price for labor, ensuring workers receive a certain level of income. While it aims to provide a basic standard of living, it may also lead to unemployment if employers cannot afford to hire workers at the mandated wage.