Price Ceilings and Price Floors - AP Economics
In-Class Questions w/ Partner (15 min.) / Pg. 2 & 3 Homework Questions (8 pts.)
Why do governments control prices?
What is a price ceiling?
What are examples of price ceilings around the World?
Graph the following information for apartments
Assume government puts a price ceiling of $800 on apartments. Indicate the area of the graph that displays a shortage of apartments
Do you feel price ceilings are effective or ineffective in society? Why?
What does the term “deadweight loss” mean?
What is a price floor?
What are examples of price floors around the World?
Graph the following information for butter
Assume government puts a price floor of $1.20 on butter. Indicate the area of the graph that displays a surplus of butter
Do you feel price floors are effective or ineffective in society? Why?
Homework Questions – 8 pts.
A price ceiling is a government regulation that makes it illegal to charge a price
a.below the equilibrium price
b. above the equilibrium price
c. for a good or service
d. above some specified level
e. that is not equal to the equilibrium price
When a price ceiling is set below the equilibrium price, the quantity supplied ______the quantity demanded and ______exists.
a. is less than; a surplus
b. is less than; a shortage
c. is greater than; a surplus
d. is greater than; a shortage
e. equals; an equilibrium
To be effective in raising people’s wages, a minimum wage must be set
a. above the equilibrium wage rate
b. below the equilibrium wage rate
c. equal to the equilibrium wage rate
d. below $5
e. either above or below the equilibrium wage depending on whether the supply curve of labor shifts rightward or leftward in response to the minimum wage
Which of the following is true of a price floor?
a. The intention of the government in creating the price floor is to assist the producers of the good.
b. To have an impact in the market for the good, the price floor should be set below the existing market price of the good.
c. An effective price floor will increase the quantity demanded of the good.
d. The price floor would tend to create a shortage of the good in the market.
e. The creation of the price floor would not change the quantity supplied of the good if the supply curve were upward-sloping to the right.
Which of the following is true in the market for a certain product if producers consistently are willing to sell more at the going price than consumers are willing to buy?
a.Demand is highly inelastic
b. Supply is highly elastic
c. The product is inferior
d. There is a price ceiling on the product
e. There is a price floor on the product
Which of the following is true of a price floor?
a. The price floor shifts the demand curve to the left.
b. An effective floor creates a shortage of the good.
c. The price floor shifts the supply curve of the good to the right.
d. To be an effective floor, it must be set above the equilibrium price.
e. The government sets the price floor to assist consumers who are exploited at the equilibrium price.
Which of the following will occur if the government imposes a price ceiling below the equilibrium price of a good?
a. The quantity sold will exceed the equilibrium quantity.
b. Firm’s total revenues will increase if demand is price elastic.
c. There will be a shortage in the market.
d. All firm’s will shut down, since price is below the equilibrium price.
e. Price will exceed the marginal cost of producing the last unit sold.
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