Question

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

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

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

C. A price floor is an advantage for consumers for buying a good. A price ceiling is a disadvantage for consumers for buying a good.

D. A price floor is a disadvantage for consumers for buying a good. A price ceiling is an advantage for consumers for buying a good.

Answer 1

The answer would be A

Answer 2

The correct answer is A.

Both are manners through which the economic authorities intervene in the markets aiming to amend the equilibrium price reached by the free interactions of the economic agents, when they consider that the market outcome is not fair for all the participants.

When a price floor is located above the equilibrium price, prices cannot decrease below that threshold and cannot reach the 'unfair' equilibrium allocation. On the other hand, a price ceiling located below the equilibrium price prevents price from increasing above the threshold, and prices again cannot reach the 'unfair' equilibrium price.