Assume a price floor is imposed in the market for milk at the current equilibrium price, and that a price ceiling is imposed in the market for natural gas at the current equilibrium price. What will an increase in demand for both milk and natural gas create?

Question

Quizplus · Accepted Answer

An increase in demand for milk with a price floor set at the current equilibrium price will not create a surplus or shortage since the price cannot decrease; it will increase the quantity traded as suppliers are willing to supply more at the existing price. For natural gas, a price ceiling at the equilibrium price means that when demand increases, the price cannot rise to clear the market, leading to a shortage as the quantity demanded exceeds the quantity supplied.

Assume a Price Floor Is Imposed in the Market for Milk