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What do economists mean when they say that price floors and ceilings stifle the rationing function of prices and distort resource allocation?
When economist says price floors means above equilibrium and leads to undermanned surplus. When they say price ceilings it means price below equilibrium which leads to unsupplied shortage.
A shortage will develop when?
The market price is below the equilibrium price.
When a surplus of a product will arise when price is above equilibrium or below equilibrium?
above equilibrium
What is a maximum price set below the equilibrium price?
Price Floor.
Do producers tend to favor price floors or price ceilings?
price floors because, when binding, price floors increase price above the equilibrium and may increase producer surplus.
What do economists mean when they say that price floors and ceilings stifle the rationing function of prices and distort resource allocation?
When economist says price floors means above equilibrium and leads to undermanned surplus. When they say price ceilings it means price below equilibrium which leads to unsupplied shortage.
Why does government place price ceilings on some essential goods?
to limit the impact of equilibrium pricing
A shortage will develop when?
The market price is below the equilibrium price.
When a surplus of a product will arise when price is above equilibrium or below equilibrium?
above equilibrium
What is a maximum price set below the equilibrium price?
Price Floor.
Do producers tend to favor price floors or price ceilings?
price floors because, when binding, price floors increase price above the equilibrium and may increase producer surplus.
When the government intervenes in the market by imposing price ceilings and price floors what occurs?
Price ceiling are maximum price for a particular good or service, usually by the government. If price ceiling is placed below an equilibrium price (set by the supply and demand of the market) there is a shortage since suppliers are not as willing to supply the goods while the consumers are willing to purchase more of the product. However, if the price ceiling is placed above an equilibrium price, it is considered non-binding and has no practical effect. Price floor works opposite of price ceiling and is a minimum price for a particular good or service. If price floor is placed above an equilibrium price there is a surplus. However, if the price ceiling is placed below an equilibrium price, it is considered non-binding and has no practical effect.
A price ceiling will only be binding if it is set?
below equilibrium price
What do you have when the actual price in a market is below the equilibrium price?
Excess Supply
Why price ceiling and price floor is binding?
A price ceiling is binding when it is below the equilibrium price. It is the legal maximum price, so the market wants to reach equilibrium (which is above that) but can't legally. If it were above the equilibrium price it would not be binding because the market would reach equilibrium and the ceiling would have no effect. A price floor is binding when it is above the equilibrium price. You can use similar reasoning to that above. It is the legal minimum price. the market wants to reach equilibrium below that but can't legally.
There will be a surplus of a product when?
price below the equilibrium level
When will there be a surplus of a product?
price below the equilibrium level
