Final answer:
The target level in a periodic review system is D) the sum of A and B plus the safety stock. Price ceilings and floors do not shift demand or supply, but they can create market disequilibrium like shortages or surpluses.
Step-by-step explanation:
The question relates to inventory management within the subject of Operations Management or Supply Chain Management, which is a part of the Business discipline. Specifically, it deals with periodic review systems for inventory control.
The correct answer to the question is: D) the sum of A and B plus the safety stock. In a periodic review system, the target inventory level is calculated as the sum of the forecast demand during both the review period and the lead time (which accounts for the time between orders), plus an additional amount of inventory called the safety stock.
The safety stock is a buffer to protect against demand variability or lead time fluctuations that could otherwise result in stockouts.
Price Controls and Market Equilibrium
Regarding the second part of the question, a price ceiling does not shift demand or supply curves; rather, it sets a legal maximum price at which goods can be sold.
Similarly, a price floor is a legal minimum price and also does not shift the demand or supply curves. Both price ceilings and price floors can result in market disequilibria, such as shortages or surpluses.
Illustrating these concepts on a demand and supply diagram would show where the price ceiling or floor is relative to the equilibrium price. A price ceiling set below the equilibrium price can lead to a shortage, while a price floor set above the equilibrium price can lead to a surplus.
Therefore, the correct answer is option D) the sum of A and B plus the safety stock