Microecon Ch:3 Sec 3.4 67-70

False: Laws that government enact to regulate prices are called price controls, one of them being a price floor. A price floor keeps a price from falling below a given level (the "floor"). A price floor is the lowest price that one can legally pay for some good or service. Price floors are sometimes called "price supports," because they support a price by preventing it from falling below a certain level.

a shortage of apartments the quantity demanded of apartments will exceed the quantity supplied: Ex . When a binding rent ceiling is instituted, this causes the price in the market for apartments to be below equilibrium. As a result, there will be more people looking for apartments than there will be landlords looking to rent out apartments. A shortage of apartments will result.

A price ceiling keeps the price for a good from rising above a set maximum. An effective price ceiling is set below equilibrium price. To calculate the shortage caused by the price ceiling, subtract the quantity supplied from the quantity demanded. In this case, the shortage is equal to 6,900−3,400, or 3,500 loaves of bread.

the quantity demanded will rise and the quantity supplied will fall, causing a shortage Ex. When a price ceiling is set below the equilibrium price, the quantity demanded will rise and the quantity supplied will fall, causing a shortage.

it is set above the equilibrium price Ex: When a price floor is set above the equilibrium price, the quantity supplied will rise and the quantity demanded will fall, causing a surplus. When a price floor is set below the equilibrium price, there is nothing preventing the price from rising to its equilibrium level. Only when the price floor is above the market equilibirum will in influence the market quantity and price.

A price floor of 75 cents per pound Ex: A basic lesson of a price floor is that when it is set above the market equilibrium price, this will lead to excess supply. Setting a price for a pound of bananas at 75 cents will generate a surplus since the quantity demanded will be lower than the quantity supplied.

There will be a surplus of yellowfin tuna. Ex: A price floor is defined as the minimum amount that can legally be charged for a good or service. An effective price floor is set above equilibrium and is meant to help the producer. A price floor set above equilibrium results in the quantity supplied being greater than quantity demanded which results in a surplus. Because the legal price of tuna is greater than the equilibrium of yellowfin tuna, the quantity supplied will be greater than the quantity demanded.

False This is the definition of a price floor. A price ceiling is defined as the maximum amount that can legally be charged for a good or service.

excess supply Ex: A price floor will tend to create conditions of excess supply as a result of the misalignment in the market forces of more supply produced than demanded at this higher price. If price is set above equilibrium, quantity demand decreases while quantity supplied increases, causing a shortage to exist in the market.

A price floor is the minimum amount that can legally be charged for a good or service. An effective price floor is set above equilibrium and is meant to help the producer. At a price floor set above equilibrium quantity supplied is greater than quantity demanded which results in a surplus.

There is nothing preventing the price from reaching its equilibrium level. Ex: When a price ceiling is set above the equilibrium price, there is nothing preventing the price from reaching equilibrium. A price ceiling is a level above which price cannot rise. However, if the price ceiling is set above equilibrium, this will not impact the equilibrium.

False Price ceilings are typically enacted in an attempt to keep prices low for those who demand the product. A price floor is enacted to keep prices high for producers.

rent A price ceiling is a legal maximum price that one pays for some good or service. A government imposes price ceilings in order to keep the price of some necessary good or service affordable. Rent is likely to have a price ceiling in an effort to keep prices low for those needing them. This is a necessity that could disproportionately affect the poor. An unintended consequence is that shortage occurs and some people are unable to get the goods. Additionally, product quality may suffer. Milk, cars and CEO salaries are not generally affected by price ceilings.