Understanding Price Controls

What is a price ceiling?

• A minimum price set by the government

• A maximum price set by the government

• A price that does not change with market conditions

• A price set by buyers and sellers in the market

Which of the following is an example of a price ceiling?

• Minimum wage

• Rent control

• Milk prices

• Gasoline prices

A price floor sets a:

• Maximum price

• Minimum price

• Fixed price

• Price that can fluctuate freely

What is a binding price constraint?

• A price control that does not affect the market equilibrium

• A price control that changes the market equilibrium

• A price control that is set too high for the market to meet

• A price control that allows the market to operate freely

If a price ceiling is set below the market equilibrium price, it is:

• A binding constraint

• A non-binding constraint

• A natural market price

• Irrelevant to the economy

What happens when a binding price floor is set higher than the equilibrium price?

• Shortage of goods or services

• Surplus of goods or services

• No change in supply or demand

• Increased demand

Which of the following is an example of a price floor?

• Rent control

• Minimum wage

• Gasoline price regulation

• Electricity rates

What is a lobby group?

• A group of people trying to change government price controls

• A group of people who set market prices

• A type of government agency that regulates prices

• A group of businesses competing for higher prices

How might a price floor on wages affect the supply and demand curves?

• Increase in supply and decrease in demand

• Decrease in supply and increase in demand

• Surplus of workers at the higher wage rate

• Shortage of workers at the higher wage rate

What is one possible issue with price controls?

• They always balance supply and demand

• They eliminate all market inefficiencies

• They can lead to shortages or surpluses

• They automatically raise consumer satisfaction