Question

In order to affect the buyers and sellers in a market

A. price ceilings must be placed on the sellers of the good
B. price floors must be above the equilibrium price and price ceilings must be below the equilibrium price
C.price controls will always impact the market
D. price ceilings must be above the equilibrium price and price floors must be below the equilibrium price

Answer 1

To influence a market, price ceilings must be set below the equilibrium price and price floors above it, which can lead to shortages and surpluses, respectively, and unintended market consequences.

Step-by-step explanation:

In order to affect the buyers and sellers in a market, price ceilings and price floors have to be set relative to the equilibrium price. A price ceiling will affect the market if it is set below the equilibrium price, leading to a situation where the quantity demanded exceeds the quantity supplied, causing shortages.

Conversely, a price floor must be set above the equilibrium price, resulting in a surplus because the quantity supplied exceeds the quantity demanded. These mechanisms of price control are employed by governments to address issues of affordability and fair minimum pricing, but they often result in unintended consequences, such as market inefficiencies and reductions in social surplus.