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Determine whether each of the following actions is based on equity or efficiency. Match the correct term with each action.

a) Equity
b) Efficiency
c) Both
d) Neither

1 Answer

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Final answer:

A price floor does not shift the demand or supply curves; it sets a minimum price above the equilibrium creating a surplus. A price ceiling also does not shift these curves but sets a maximum price below the equilibrium, leading to a shortage. Both have no effect on the position of the supply and demand curves.

Step-by-step explanation:

The subject of the question is economics, specifically relating to market equilibrium, price floors, and price ceilings. A price floor, which is typically set by the government, is the minimum price that can be charged for a good or service. Setting a price floor above the equilibrium price can lead to a surplus where supply exceeds demand.

However, a price floor does not shift the demand or supply curve; instead, it creates a legally binding minimum price above the equilibrium.

Similarly, a price ceiling is the maximum price that can be legally charged and is set below the equilibrium price leading to a shortage, where demand exceeds supply. A price ceiling also does not shift the demand or supply curve but imposes a cap on prices.

Therefore, the answer to the question 'A price floor will usually shift:' is d. neither, and the answer to 'A price ceiling will usually shift:' is also d. neither.

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