Question

Which statements correctly explain price floors and price ceilings? Choose four answers.

Ineffective price floors tend to be too high.
Ineffective price ceilings tend to be too low.
Price floors help producers by raising prices.
Price ceilings help consumers by lowering prices.
Effective price floors are set above equilibrium.
Effective price ceilings are set below equilibrium.

Answer 1

Correct answers:

- Price floors help producers by raising prices.
- Price ceilings help consumers by lowering prices.
- Effective price floors are set above equilibrium.
- Effective price ceilings are set below equilibrium.

Brief explanation: an effective (binding) price floor is set above the market equilibrium and raises the market price (often creating a surplus). An effective price ceiling is set below equilibrium and lowers the market price (often creating a shortage). Ineffective (non‑binding) floors are below equilibrium and ceilings are above equilibrium, so the two statements about ineffective floors/ceilings in the question are incorrect.