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Microeconomics: Principles & Policy

14th Edition
William J. Baumol + 2 others
Publisher: Cengage Learning
ISBN: 9781337794992

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BuyFindarrow_forward

Microeconomics: Principles & Policy

14th Edition
William J. Baumol + 2 others
Publisher: Cengage Learning
ISBN: 9781337794992
Chapter 4, Problem 5DQ
Textbook Problem
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It is claimed in this chapter that either price floors or price ceilings reduce the actual quantity exchanged in a market. Use a diagram or diagrams to test this conclusion, and explain the common sense behind it.

To determine

To analyze:

The effect of price floor and price ceiling on the actual quantity exchanged in a market.

Explanation of Solution

When a price floor is imposed, it is imposed to fix the price at a level above the equilibrium point in the market. At this point the supply is higher than the demand which leads to excess supply in the market and the actual quantity exchanged is lower than the equilibrium quantity, as shown with the help of diagram below:

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