What is a shortage? When does it occur? What is the result of a government imposed price floor (price ceiling)?

31. What is a shortage? When does it occur?

32. What is the result of a government imposed price floor (price ceiling)?

33. What role do prices play in allocating resources and goods?

Expert Solution

31. The shortage is the insufficiency of the supply to meets demand, the shortage occurs when the quantity demanded is more than the quantity supplied. At equilibrium there is no shortage and below the equilibrium price there is always shortage.

32. The price floor is the minimum legal price for a good or service that is set by the government, the price floor is intended to protect the producers from the price is being too low. A binding price floor is set above the equilibrium price, and when it is set above the equilibrium price there is always a surplus. The result of a price floor is the surplus.

33. The prices play as a stabilizer in allocating goods and services, when there is a shortage for the goods and services the price will rise to correct he shortage. In the opposite case, if there is a surplus the prices will fall so the surplus will be eliminated from the market.

Rahul Sunny answered 2 years ago

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