Question

Typically, the government limits the quantity of a good that can be bought and sold by: setting a price floor below the equilibrium price. setting a price ceiling above the equilibrium price. licensing the suppliers. maintaining the equilibrium price regardless of changes in demand and supply.

Answer 1

Answer:

Setting a price floor below the equilibrium price.

Explanation:

To begin with, it is essential to understand some key concepts:

1. Price floor - can be regarded as the least price that can be established for a category of products in the market.

2. Price Ceiling, on the other hand, can be regarded as the price cap to ensure price of a commodity does not rise above a certain level.

Essentially, price floor and price ceiling are two elements of price control.

Equilibrium price can be regarded as price at which quantity demanded equals quantity supplied.

Equilibrium price is thus the optimum and best combination of demand and supply that could give an optimum return. Any price short of the equilibrium price is often at the risk of the seller.

Thus, setting a price floor below the equilibrium price is tantamount to reducing the interest of the seller in selling such products. Ultimately, this reduces the amount of goods available in the market, while the demand will be enormous, owing to the lower price floor. The implication is that the quantity that can be bought or sold has been effectively curtailed by the government.

On the other hand, setting price ceiling above the equilibrium price would not achieve the objective of the government. This would only ensure the flooding of commodities in the market, effectively dwarfing the quantity demanded. This is away from the objective of the government as implied in this given question.