Question

Define price floor, price ceiling, quota and tax wedge. How does EACH affect the market?

Answer 1

Price floor is like a government imposed price control on which how low a price can be charged for a product ,good, commodity and services.this must be higher than equilibrium price.

Price ceiling is like a government imposed price control on which how high a price can be charged for a product,good, commodity and services.

Quota is like a government imposed trade restrictions that limit the monetary value of goods that a country can import or export during a particular period.

Tax wedge means the difference between before and after tax wages .this measure how much government received as a result of tax.

Price floor limit the higher market price by fixing lower prices.while price ceiling boost higher market price .quota fixes the limit of foreign exchange.