Multiple Choice
A price (floor/ceiling) is the maximum legal price a seller may charge for a product or service. Which term correctly completes the sentence?
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5. Consumer and Producer Surplus; Price Ceilings and Floors
Price Ceilings, Price Floors, and Black Markets
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Refer to Figure 6-1. A binding price ceiling is shown in which of the following panels?
A
Panel (c)
B
Panel (a)
C
Panel (d)
D
Panel (b)
Verified step by step guidance1
Understand what a binding price ceiling means: it is a legal maximum price set below the market equilibrium price, causing a shortage because quantity demanded exceeds quantity supplied.
Identify the market equilibrium price and quantity in each panel by looking at where the supply and demand curves intersect.
Check the price ceiling level in each panel and compare it to the equilibrium price: if the ceiling is below equilibrium, it is binding; if above, it is non-binding.
Look for signs of shortage in the panel with a binding price ceiling: quantity demanded will be greater than quantity supplied at the ceiling price.
Conclude which panel shows a binding price ceiling by confirming the ceiling price is below equilibrium and results in a shortage.
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