Which of the following statements best differentiates price ceilings and price floors?
A) Price ceilings represent minimum prices, while price floors represent maximum prices.
B) Binding price ceilings are always set below the equilibrium price, whereas binding price floors are always set above the equilibrium price.
C) Price ceilings and price floors have the same effects.
D) Price floors cause shortages to appear, whereas price ceilings have the opposite effect.
E) Price ceilings are always effective, whereas price floors are rarely effective.

Question

Quizplus · Accepted Answer

Price ceilings and price floors are both government interventions that control prices in a market. Price ceilings are a maximum price that can be charged for a good or service, while price floors are a minimum price that must be paid for a good or service. The best differentiation between the two is that binding price ceilings are always set below the equilibrium price, whereas binding price floors are always set above the equilibrium price. This means that price ceilings result in a shortage of the good or service, while price floors result in a surplus.

Which of the Following Statements Best Differentiates Price Ceilings and Price