Question

In: Economics

Graphically explain price floor and price ceiling. Do these meddle with rationing function of prices? Carefully...

Graphically explain price floor and price ceiling. Do these meddle with rationing function of prices? Carefully explain.

Solutions

Expert Solution

1 - Price floor is the price which is set above the equlibrium price . This is the minimum price to be charged from the consumer. Since this price is above the equilibrium price , demand is less and supply is more leading to the surplus in the market. The price needs to fall to bring the marker in equilibrium. Pf is the price floor

Price ceiling is the maximum price that can be charged from the consumer. Since this price is below the equilibrium price , demand is greater than the supply leading to shortage in the market. The price needs to rise in order to bring the market into equilibrium. Pc is the price ceiling. It leads to rise in consumer surplus and fall in producer surplus.

Price rationing is a tool which is used to allocate the scarce resources in the market without the use of price. But , in price ceiling and price floor , the main mechanism is all carried on the price setting. Hence price floor and ceiling contradict or meddle with price rationing.

The price floor and price ceiling can be shown as follows -


Related Solutions

Graphically explain price floor and price ceiling. Do these meddle with rationing function of prices? Carefully...
Graphically explain price floor and price ceiling. Do these meddle with rationing function of prices? Carefully explain
Please discuss and elaborate on the price ceiling and price floor ? are they efficient? explain...
Please discuss and elaborate on the price ceiling and price floor ? are they efficient? explain the consequences?
Identify and explain an economic concept found in the article about price ceiling and floor ....
Identify and explain an economic concept found in the article about price ceiling and floor . need to show that you understand what price ceiling and floor is 350 word or less need to cite each source in correct bibliographic form
A price floor is A. almost always equal to the price ceiling. B. the highest possible...
A price floor is A. almost always equal to the price ceiling. B. the highest possible legal price that can be charged for a good or service. C. the lowest legal price at which a good or service can be traded. D. a legal price of zero that can be charged for a good or service. E. usually equal to the equilibrium price established before the government imposed the price floor
Define price ceiling and price floor and give an example of each. Which leads to a...
Define price ceiling and price floor and give an example of each. Which leads to a shortage? Which leads to a surplus? Why?
Explain what is consumer surplus, producer surplus and total surplus. Show graphically how a price floor...
Explain what is consumer surplus, producer surplus and total surplus. Show graphically how a price floor reduces total surplus.
Differentiate between price ceiling and price floor in a tabular form with any five differences along...
Differentiate between price ceiling and price floor in a tabular form with any five differences along with two examples each.
Why does a price ceiling create a black market? Why does a price floor create a...
Why does a price ceiling create a black market? Why does a price floor create a grey market?
12. Calculate the fictional gain or loss of industry resulting from price ceiling and price floor
12. Calculate the fictional gain or loss of industry resulting from price ceiling and price floor
Question 4: Why some governments resort to price ceiling and price floor for some goods and...
Question 4: Why some governments resort to price ceiling and price floor for some goods and services? Describe three most important disadvantages of price ceiling and price floor? In what conditions do you think that price ceiling and price floor may contribute to welfare of people?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT