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Quantitative Analysis of Price Ceilings and Price Floors: Finding Points quiz

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  • When is a price ceiling considered effective in a market?
    A price ceiling is effective when it is set below the equilibrium price. This causes the market price to be lower than it would be at equilibrium.
  • What is the equilibrium price in the rental market example provided?
    The equilibrium price in the example is \$1500. This is found by setting quantity demanded equal to quantity supplied and solving for price.
  • How do you find the equilibrium quantity in a market using equations?
    Plug the equilibrium price into either the quantity demanded or quantity supplied equation. The result is the equilibrium quantity.
  • What is the equilibrium quantity in the rental market example?
    The equilibrium quantity is 1.5 million units. This is calculated by substituting the equilibrium price into the demand equation.
  • What is the formula for quantity demanded in the example?
    Quantity demanded equals 3,000,000 minus 1,000 times the price (Qd = 3,000,000 - 1,000P).
  • What is the formula for quantity supplied in the example?
    Quantity supplied equals 1,300 times the price minus 450,000 (Qs = 1,300P - 450,000).
  • How do you determine if a price ceiling is effective using a graph?
    A price ceiling is effective if it is drawn below the equilibrium price on the graph. If it is above equilibrium, it is ineffective.
  • What happens to quantity demanded when a price ceiling is set below equilibrium?
    Quantity demanded increases because the lower price makes the good more attractive to buyers.
  • What happens to quantity supplied when a price ceiling is set below equilibrium?
    Quantity supplied decreases because the lower price makes it less attractive for sellers to provide the good.
  • What is the quantity demanded at a price ceiling of \$1,000 in the example?
    The quantity demanded is 2,000,000 units when the price ceiling is \$1,000.
  • What is the quantity supplied at a price ceiling of \$1,000 in the example?
    The quantity supplied is 850,000 units when the price ceiling is \$1,000.
  • How do you calculate the shortage caused by a price ceiling?
    Subtract the quantity supplied from the quantity demanded. The result is the size of the shortage.
  • What is the size of the shortage at a \$1,000 price ceiling in the example?
    The shortage is 1,150,000 units, calculated as 2,000,000 (demanded) minus 850,000 (supplied).
  • When is a price floor considered effective?
    A price floor is effective when it is set above the equilibrium price. This causes the market price to be higher than equilibrium.
  • If a price ceiling or floor is ineffective, what happens to the market?
    The market trades at equilibrium, so quantity demanded equals quantity supplied at the equilibrium price.