Multiple Choice
In the context of price controls, what term best describes the amount of money a business thinks it should charge for its product or service?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Price Ceilings, Price Floors, and Black Markets
Multiple Choice
Which type of government intervention in the market is most likely to result in a surplus of goods and services?
A
Price ceiling set below the equilibrium price
B
Price floor set above the equilibrium price
C
Tax imposed on producers
D
Subsidy given to consumers
Verified step by step guidance1
Understand the concept of equilibrium price, which is the price at which the quantity demanded equals the quantity supplied in a market.
Recall that a price floor is a government-imposed minimum price set above the equilibrium price, which prevents the price from falling to the equilibrium level.
Analyze the effect of a price floor set above equilibrium: at this higher price, producers are willing to supply more goods, but consumers demand less, leading to excess supply or a surplus.
Contrast this with a price ceiling set below equilibrium, which typically causes a shortage because the price is too low to encourage enough supply.
Recognize that taxes on producers and subsidies to consumers affect supply and demand differently, but do not necessarily create a surplus like a price floor above equilibrium does.
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