Question

In a target interview, a guest is interested in a specific product but is unhappy with the price.

a) Consider offering a discount
b) Focus on the product's features
c) Suggest alternative products
d) All of the above

Answer 1

A price floor set above the equilibrium price causes a surplus and does not shift the demand or supply curves, while a price ceiling set below the equilibrium price leads to a shortage without shifting the curves.

Step-by-step explanation:

Understanding Price Floors and Price Ceilings in Economics

When considering a price floor, it is a minimum price set by the government that is typically above the equilibrium price. A price floor does not shift the demand or supply curves; rather, it can result in a surplus if the price floor is set substantially above the equilibrium price. This is because the quantity supplied at this higher price is greater than the quantity demanded, leading to excess supply. Conversely, a price ceiling is a maximum price set by the government that is generally below the equilibrium price. Similar to a price floor, a price ceiling does not shift the demand or supply curves and can lead to a shortage if it is set substantially below the equilibrium price, as the quantity demanded exceeds the quantity supplied.

To illustrate these concepts, one should sketch the demand and supply diagram, marking the equilibrium price where the demand and supply curves intersect. Then, represent the price floor or ceiling as a horizontal line above or below this point, accordingly.