Price ceilings Flashcards
1
Q
What is a price ceiling?
A
A price ceiling is a maximum price set by the government. For instance in times of war when shortages are likely to occur it insures that low income earners have access to basic products.
2
Q
What will happen if the price is step below the market equilibrium price?
A
It will create a shortage which has to be managed through rationing supply or else the black market may occur.
3
Q
How will a surplus occur?
A
Surpluses often occur when the cost of a product is initially set too high, and nobody is willing to pay that price.
