Famous Examples of Price Ceilings and Price Floors in Action

📚 Quick Study Guide

• 📈 Price Ceiling: A maximum legal price set by the government. It's only effective if set below the equilibrium price, leading to shortages. Think rent control!
• 📉 Price Floor: A minimum legal price set by the government. It's only effective if set above the equilibrium price, leading to surpluses. Think minimum wage!
• ⚖️ Equilibrium Price: The price where supply equals demand. Price ceilings and floors interfere with this natural balance.
• 🔑 Key Concepts: Shortages, surpluses, deadweight loss, market distortion.

🧪 Practice Quiz

1. What is a common example of a price ceiling?
   1. A) Minimum wage
   2. B) Rent control
   3. C) Agricultural subsidies
   4. D) Gasoline tax


2. Which of the following is a likely consequence of a price ceiling set below the equilibrium price?
   1. A) Surplus
   2. B) Shortage
   3. C) Equilibrium
   4. D) No change


3. What is a well-known example of a price floor?
   1. A) Rent control
   2. B) Maximum interest rates
   3. C) Minimum wage
   4. D) Price gouging laws


4. If a price floor is set below the equilibrium price, what is the likely outcome?
   1. A) Shortage
   2. B) Surplus
   3. C) The price floor has no effect
   4. D) Increased demand


5. What is the main goal of implementing a price ceiling?
   1. A) To protect producers
   2. B) To protect consumers from high prices
   3. C) To increase market efficiency
   4. D) To create surpluses


6. What is the primary intention behind establishing a price floor?
   1. A) To benefit consumers
   2. B) To support producers by ensuring a minimum income
   3. C) To decrease supply
   4. D) To lower prices


7. Which of the following describes a potential unintended consequence of rent control (a price ceiling)?
   1. A) Increased availability of housing
   2. B) Higher quality rental units
   3. C) Black markets for apartments
   4. D) Lower demand for housing