Multiple Choice
Which type of government intervention in the market is most likely to result in a surplus of goods and services?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Price Ceilings, Price Floors, and Black Markets
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Which of the following best describes a price ceiling in a market?
A
A market-determined price that results from unrestricted supply and demand
B
A price set by the government above the equilibrium price to protect producers
C
A legally established maximum price that sellers can charge for a good or service
D
A legally established minimum price that buyers must pay for a good or service
Verified step by step guidance1
Understand the concept of a price ceiling: it is a government-imposed limit on how high a price can be charged for a good or service.
Recognize that a price ceiling is set below the market equilibrium price to be effective; otherwise, it has no impact.
Note that a price ceiling is a legally established maximum price, meaning sellers cannot charge more than this price.
Contrast this with a price floor, which is a legally established minimum price that buyers must pay, often set above equilibrium to protect producers.
Eliminate options that describe market-determined prices or price floors, and identify the correct description as a legally established maximum price sellers can charge.
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Price Ceilings, Price Floors, and Black Markets practice set
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