Elasticity and Incentives

Question 18 • FL-2102340-Economics with Financial Literacy (Teacher Directed)

What is the difference between a price floor and a price ceiling?

Answer

A price floor is the minimum price allowed for a good. A price ceiling is the maximum price allowed for a good.

A price floor is the maximum price allowed for a good. A price ceiling is the minimum price allowed for a good.

A price ceiling below the equilibrium price has no effect.

A price floor above the equilibrium price has no effect.

Explanation

A price floor sets the lowest legal price at which a good can be sold, while a price ceiling sets the highest legal price. Choice A states these definitions correctly. Choices C and D describe effects incorrectly: a ceiling below equilibrium or a floor above equilibrium can affect the market.

AI-written and checked against the verified answer.

More from this Course

Quiz

20 verified answers

Market Structures and Competition

2.4 Profit

1.7 Comparative and Absolute Advantage