Economics Homework Help

Write a brief essay (250 word minimum) on the following topic:

Price Ceilings

A non-binding price ceiling should have no affect on equilibrium price. However it is possible that a non-binding price ceiling might actually cause prices to increase. Explain why this might happen, answering all of the following:

• Explain why a binding price ceiling will result in lower prices and shortages.
• Explain why a non-binding price ceiling should, in theory, cause market price to remain unchanged.
• If consumers are aware of a non-binding price ceiling, how might this affect their expectations about future prices? How will this affect demand in the present?
• If sellers are aware of a non-binding price ceiling, how might this affect their expectations about future prices? How will this affect supply in the present?
• How will your previous answers affect equilibrium prices?