This is something i would explain and illustrate with students in my economics microeconomics classes.
Price ceilings cause shortages and price floors cause surpluses.
It creates surplus only if the floor is set above the equilibrium price.
If the market price is above the equilibrium price quantity supplied is greater than quantity demanded creating a surplus.
Some effects of price ceiling are.
Imagine if you had to rent out the front apartment of the farm for half of what you wanted to rent because of some new law obama made.
However price ceiling in a long run can cause adverse effect on market and create huge market inefficiencies.
A price floor causes a surplus if the price floor is below the equilibrium price c.
Interfere with the rationing function of prices.
Price ceilings cause shortages.
An example of a price ceiling we can use to explain the concept would be rent control.
A price ceiling causes a shortage if the ceiling price is above the equilibrium price b.
The supply of.
Suppose that the supply and demand for wheat flour are balanced at the current price and that the government then fixes a lower maximum price.
A price ceiling causes an increase in demand if the ceiling price is set below the equilibrium price d.
Price ceilings and price floors.
But if price ceiling is set below the existing market price the market undergoes problem of shortage.
Price floors which prohibit prices below a certain minimum cause surpluses at least for a time.
Cause surpluses and shortages respectively.
If price ceiling is set above the existing market price there is no direct effect.
One way shortages occur is through a price ceiling.
Price floors transfer consumer surplus to producers.
Is quantity demanded or quantity supplied greater.
A price ceiling is designed to protect consumers from prices that are too high so to protect consumers the government sets a maximum price.
But the price floor p f blocks that communication between suppliers and consumers preventing them from responding to the surplus in a mutually appropriate way.
They are forced to pay higher prices and consume smaller quantities than they would with free market.
A price floor can cause a surplus while a price ceiling can cause a shortage but not always.
Price ceilings which prevent prices from exceeding a certain maximum cause shortages.
Consumers are clearly made worse off by price floors.
Suppliers can be worse off.
Price floors cause surpluses.
Shift demand and supply curves and therefore have no effect on the rationing function of prices.
Make the rationing function of free markets more efficient.
A price ceiling set below the equilibrium price causes a surplus.
