Back to the full dot-point answer
QLDEconomicsQuick questions
Unit 1: Markets and models
Quick questions on Price ceilings, price floors and market welfare (QCE Economics Unit 1)
8short Q&A pairs drawn directly from our worked dot-point answer. For full context and worked exam questions, read the parent dot-point page.
What are price ceilings?Show answer
A price ceiling is a legal maximum price, set below the equilibrium price. If set above equilibrium it has no effect (the market clears below the cap).
What are price floors?Show answer
A price floor is a legal minimum price, set above the equilibrium price. If set below equilibrium it has no effect.
What are australian examples?Show answer
Rent control (capping rents below market) has been used historically and is periodically debated. Economists warn it reduces the quantity and quality of rental housing over time, because landlords have less incentive to supply or maintain dwellings. Retail electricity Default Market Offer caps are a softer, regulated form of ceiling.
What is price floor?Show answer
A legal minimum price; binding when above equilibrium; causes a surplus.
What is deadweight loss?Show answer
The loss of total economic surplus from trades that no longer occur when output is pushed away from the efficient equilibrium quantity.
What is q1?Show answer
Define a price ceiling and explain, using a diagram, why a binding price ceiling causes a shortage. [4 marks]
What is q2?Show answer
The national minimum wage is a price floor in the labour market. Analyse the effect of raising the minimum wage above the market-clearing wage on employment and on total welfare. [6 marks]
What is q3?Show answer
Explain why total economic surplus is maximised at the free-market equilibrium, and what happens to surplus when a binding price control is imposed. [4 marks]