Compare and contrast a price ceiling and a price floor
What will be an ideal response?
A price ceiling is the maximum legal price that can be charged. A price floor is the minimum legal price that can be charged. For a price ceiling or a price floor to have an effect, they must make the equilibrium price illegal. So, an effective price ceiling is set below the equilibrium price while an effective price floor is set above the equilibrium price. A price ceiling creates a shortage of the good while a price floor creates a surplus. Both create an inefficient market outcome because the marginal benefit of the last unit consumed no longer equals the marginal cost of the last unit produced.
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SouthState Chemical Co produces pine oil cleaners in a process that produces emissions that discolor the paint on nearby houses, although the emissions have been declared nontoxic to humans
a. Is the price for the cleaner likely to be allocatively efficient? Use a graphic illustration in your answer. b. If your answer to (a) is no, what is an appropriate government policy to correct the problem?
When an externality is present, the market equilibrium is
a. efficient, and the equilibrium maximizes the total benefit to society as a whole. b. efficient, but the equilibrium does not maximize the total benefit to society as a whole. c. inefficient, but the equilibrium maximizes the total benefit to society as a whole. d. inefficient, and the equilibrium does not maximize the total benefit to society as a whole.