Answer to Question #262929 in Microeconomics for Mark G

Question

Identify and defend the type of price control that can be implemented to avoid the change in equilibrium. 

Answer 1

A price ceiling refers to the highest price that can be charged, while a price floor refers to the lowest price that can be charged.

Price limitations limit the amount that a price can increase over a certain point. When a price ceiling is set lower than the equilibrium price, demand exceeds supply, resulting in excess demand or shortages. Price floors keep prices from falling below a specific point.