Final answer:
In economics, a price floor has the largest effect when set substantially above the equilibrium, creating a surplus. A price ceiling has the most significant effect when it is substantially below the equilibrium, causing a shortage. The correct option is C.
Step-by-step explanation:
The net realizable value of inventory is not explicitly mentioned in the student's question; however, it typically refers to the estimated selling price of inventory in the ordinary course of business minus any costs to complete and dispose of it.
While the terms ceiling, floor, upper limit, and lower limit are used, they generally relate to the concepts of price ceilings and price floors in economics, directly impacting market prices and quantities transacted. According to economic principles, a price floor will have the largest effect if it is set substantially above the equilibrium price because it creates a surplus by preventing the market price from falling to its natural equilibrium, resulting in excess supply as not all goods at the higher price will be purchased.
Conversely, a price ceiling will have the largest effect when it is set substantially below the equilibrium price as this creates a shortage by preventing the market price from rising to its equilibrium level, which leads to excess demand.