What about a price floor, Does a price ceiling increase or

What about a price floor

Reference no: EM132117825

Question: Does a price ceiling increase or decrease the number of transactions in a market? Why? What about a price floor? Assuming that people obey the price ceiling, the market price will be above equilibrium, which means that Qd will be less than Qs. Firms can only sell what is demanded, so the number of transactions will fall to Qd. This is easy to see graphically. By analogous reasoning, with a price floor the market price will be below the equilibrium price, so Qd will be greater than Qs. Since the limit on transactions here is demand, the number of transactions will fall to Qd. Note that because both price floors and price ceilings reduce the number of transactions, social surplus is less.

Reference no: EM132117825

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