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Welcome to the Q&A for ECN/APEC 2010, where you can ask questions and receive answers from your fellow students, the TA, and your professor.

Please only ask questions about the material for the course. Try to create discussions about the material we see in class, instead of just thinking of economics in general (this is an introduction to microeconomics class, not a policy or government class).

For questions and discussions about course organization or other course related topics, come see us after class or during office hours.

Feel free to discuss quiz questions on the Q&A, but do not provide direct answers to quiz questions before the quiz's due date.

Do price ceilings and floors change demand or supply? If so, in what way?

+2 votes
11 views

Price ceilings prevent a price from rising above a certain level.

Price floors prevent a price from falling below a certain level.

asked Mar 26 by canvas-e25408d8f8d15 (216 points)

2 Answers

+1 vote
 
Best answer
Price ceilings or floors do not cause the demand or supply curve to change or shift. There will be a different quantity demanded and quantity supplied at the new price level, as long as the price ceiling or floor is effective (above the market equilibrium for floors and below the market equilibrium for price ceilings).
answered Mar 27 by Chris Vitale TA (460 points)
selected Mar 29 by Martin
Chris is 100% right. Remember our mantra from the beginning of class:

- Demand changes if and only if consumers' willingnesses-to-pay change.
- Supply changes if and only if producers' willingnesses-to-sell change.

Neither of these is affected by a price ceiling or a price floor. Rather, ceilings and floors have to potential to change the *quantities* supplied or demanded, but without affecting demand and supply themselves.
–2 votes
Yes, price ceiling create shortages causing demand to increase supply decrease. Price floors cause surplus causing demand to decrease and supply to increase. However, there is really no way to fix these types of shortages or surpluses since they are set prices.
answered Mar 26 by canvas-c48fd900b6cfe (245 points)
"Yes, price ceiling create shortages causing demand to increase supply decrease." I hope you are referring to the quantity demanded and quantity supplied at that specific price, below the market equilibrium for the ceiling to be effective, and again quantity demanded and quantity supplied at the specific price for the price floor, above market equilibrium for it to be effective.

The entire demand curve or the entire supply curve does not shift.
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