Question

What causes a shortage of a good—a price ceiling or a price floor?  Explain your answer. What...

  1. What causes a shortage of a good—a price ceiling or a price floor?  Explain your answer.
  2. What is consumer surplus?  What is producer surplus?  Be able to recognize how these concepts are shown in a supply and demand graph.
  3. What is efficiency?  Is it the only goal of economic policymakers?  
  4. What is deadweight loss?
  5. Why do government regulations such as price controls cause economic inefficiency?  
  6. Why might a regulation that banned the use of pesticides kill people?

Homework Answers

Answer #1

A shortage of food would occur if demand for food is more than supply of food. This will occur if price ceiling (maximum chargable price) for food are below the equilibrium price. This makes the price ceiling binding on the equilibrium price. So the market is not able to adjust to the equilibrium price which is above the price ceiling. At a lower price there is more demand and less supply. This causes food shortage in the market.

Illustration in image for better understanding.

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