Chapter 6: Applications

Question 1

What is a price ceiling?

Answer 1

a legal maximum on the price at which a good can be sold

Question 2

What is a price floor?

Answer 2

A legal minimum on the price at which a good can be sold

Question 3

What is a binding price ceiling?

Answer 3

The equilibrium is above the ceiling. The ceiling prevents prices from adjusting prices supply and demand and reaching the equilibrium, causing a surplus.

Question 4

What is a binding price floor.

Answer 4

The equilibrium is below the floor. The ceiling prevents prices from adjusting supply and demand and reaching the equilibrium, causing a surplus.

Question 5

What rationing mechanisms are available?

Answer 5

Wait lines, personal biases,

Question 6

What is the rationing mechanism in a free, competitive market?

Answer 6

At the equilibrium, anyone who wants to pay the market price can get a cone: it is rationed with prices.