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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

Which causes a shortage of a good—a price ceiling a price floor? Justify your answer with a graph.

To determine
The reason behind the cause of shortage in the economy.

Explanation

The price controls are the government-controlled price mechanisms. The maximum and the minimum prices will be set under the price controls by the government in order to prevent the overpricing and underpricing in the market to protect the consumer as well as producer’s interests. The price control mechanisms are known as the price ceilings and price floor. The price ceiling is the fixation of the maximum price that can be charged by the producers and the price floor is the setting of minimum guarantee price to the producers.

When there is a price floor in the economy, then, the producers will get a minimum of the floor price and this will increase the revenue of the producers. This minimum guaranteed price would lead to the increased supply by the producers than the economic demand in the economy...

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