Question

What is a price ceiling? What is a price floor? Give a real world example of...

What is a price ceiling? What is a price floor? Give a real world example of each. What happens to the relationship between quantity demanded and the quantity supplied with an effective price ceiling? What happens to the relationship between quantity demanded and the quantity supplied with an effective price floor? What is likely to happen if there is a shortage of rent controlled apartments? What is likely to happen if there is a surplus of price supported grain?

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Answer #1

Price ceiling is the maximum legal price where as price floor is the minimum legal price.

Rent control act is an example of price ceiling and Mimimum support price for grains is A price floor.

When there is effective price ceiling quantity demanded increases and quantity supplied decreases leading to shortage.

As a result of shortage the landlord may ration or can discriminate against the the rent seekers.

There can be black marketing

Quality of rooms may go down.

When there is surplus of grains then govt. Will keep the buffer stock and due to which grains can be wasted.

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