Both price floors and price ceilings, when effective, lead to
A) shortages.
B) surpluses.
C) an increase in the quantity traded.
D) a reduction in the quantity traded.

Question

Quizplus · Accepted Answer

Both price floors and price ceilings create market inefficiencies that can lead to a reduction in the quantity traded. With a price floor, the minimum price is set above the equilibrium price, which can lead to a surplus of goods or services as producers are incentivized to supply more than consumers demand at that price. With a price ceiling, the maximum price is set below the equilibrium price, which can lead to a shortage of goods or services as consumers demand more than producers are willing to supply at that price. In both cases, there is a reduction in the quantity traded relative to the equilibrium quantity.

Both Price Floors and Price Ceilings, When Effective, Lead to