Question

A price floor reduces the amount of a product that consumers buy because it keeps the price above the competitive market equilibrium A price ceiling, on the other hand, increases the amount of the product that consumers buy because it keeps the price below the competitive market equilibrium. Do you agree with the student's reasoning? To address this, first, add a binding price floor and a binding price ceiling. 1.) Use the line drawing tool to draw the price floor Properly label this line. 2.) Use the line drawing tool to draw the price ceiling Properly label this line. Carefully follow the instructions above, and only draw the required objects. A price ceiling A. does increase the amount of the product that consumers buy because it lowers the price. does increase the amount of the product that consumers buy because it creates a surplus. C. does not increase the amount of the product that consumers buy because it creates a surplus. D. does not increase the amount of the product that consumers buy because it creates a shortage. E. both a and b

Answer 1

Answer:

The correct answer is  D. does not increase the amount of the product that consumers buy because it creates a shortage.

Explanation:

If a market is defined by the following demand and supply functions. The balance or price that reflects the coincidence in valuation of the good of consumers and producers, would occur at the intersection between both functions.

When the State intends to supplant market activity in the allocation of goods and services, it can do so through a policy of maximum and minimum prices.

If it is considered appropriate that a given price is less accessible than what would take place in the market, it will establish a maximum price, above which no company can sell. When this occurs, we can graphically appreciate how at that price the quantity demanded is greater than that offered, thus generating an excess of demand that leads to the shortage of the good. In this context, some mechanism will be developed that allows rationing the offer (long lines, different criteria such as age, economic level, etc.) This being, land paid for the appearance of the “black market”.

Another type of price control is the establishment of a minimum price. This system has been used frequently in agricultural markets, when the State has sought to prevent farmers' income from drastically reducing.

When a minimum price is established higher than what would take place in the market, the quantity offered exceeds the defendant, thus producing an excess supply. This excess supply will lead to an accumulation of production that will generate great inefficiency.