Price Ceiling is a law that requires a price of a certain good to be below a certain level.
A Price Ceiling has to be lower than the equilibrium price in order for it to be effective. If prices are below the equilibrium then suppliers cannot charge the same price for their products. This makes some of the suppliers drop totally out of the market. The demanders or buyers can find their products at a lower price now. This makes the demand increase and new buyers start coming into the market. This causes a shortage and a good example of this is lines,lines for products your wanting to buy.

Some examples of the government controling prices is the rent in New York. The rent in New York City during the world war 2 is a great example. As the soldiers came home from victory they were searching for appartments to start families. Rent was too high for these families to live in so the rent was set by the government so they could afford it. With the rent control set families were buying apartments fast. The demand for the apartments went up and the supply went down. There then was a shortage of appartments.

In the real world you could relate this to the NFL Playoffs. When the Colts and Patriots played in there was only a certain amount of tickets sold that could fill the stadium. The demand for a ticket was huge. The face value of these tickets stayed the same but could have been changed if there wasnt a ceiling on them. Then the black market forms and scalpers are all over the streets selling the tickets for a rediculous price that buyers are willing to buy.

Here is an example of a Price Ceiling graph.
Basic_price_ceiling.gif


Questions: Which of the statements are true about Price Ceiling?
A.Price Ceiling causes a surplus if Price floor is even
B.Price Ceiling causes a shortage if the Price ceiling is below the equilibrium price.
C.Price Ceiling causes a surplus if Price floor is below

Answer B
This is because just like the New York City rent control explanation. As the demand for apartments increased there was the apartments were being taken up because the supply went down.

Question: Suppose that a regulation in place that does not allow the price of a good to exceed $5. If this price is above the equilibrium point in the market, this would be an example of a;
A. Binding price ceiling
B. Not binding price ceiling
C. Binding price floor
D. Not binding price floor

Answer is B


Question: Suppose that a regulation is in place that does not allow the price of a good to exceed $5. If this price is below the equilibrium point in market, this would be an example of;
A. Binding price Ceiling
B. Not Binding price Ceiling
C. Binding Price floor
D. Not Binding price floor

Answer is A
This is because when a market is a binding price ceiling then there will be a shortage.

Question: If a price Ceiling is in place and its is binding, market will;
A. remain in equilibrium unaffected by the price floor
B. experience shortage
C. experience surplus
D. adjust its equilibrium point toward price floor

Answer: B
This is because there is a demand higher that the surplus. More people are wanting this product on the market but not all buyers will be able to get the product due to the shortage.
Referances:
www.econlib.com
http://pbskids.org
www.dictionary.com
http://www.prices2014.net/