Match each price regulation mechanism or outcome on the left with its appropriate economic definition or market result on the right.
- Effective Price CeilingA maximum legal price set below market equilibrium resulting in a market shortage.
- Effective Price FloorA minimum legal price set above market equilibrium resulting in a market surplus.
- Black Market PriceAn unofficial price higher than the maximum price cap paid by consumers under severe shortages.
- Buffer Stock PurchasesGovernment buying of excess agricultural goods to maintain price supports above market equilibrium.
Answer
Effective Price Ceiling matches with a maximum legal price set below market equilibrium resulting in a market shortage; Effective Price Floor matches with a minimum legal price set above market equilibrium resulting in a market surplus; Black Market Price matches with an unofficial price higher than the maximum price cap paid by consumers under severe shortages; Buffer Stock Purchases matches with government buying of excess agricultural goods to maintain price supports above market equilibrium.
Each price control policy maps directly to its statutory definition and market outcome: effective price ceilings are binding below equilibrium creating shortages, effective price floors are binding above equilibrium creating surpluses, black markets develop due to price cap shortages, and buffer stock schemes clear surpluses created by agricultural price supports.
Step-by-Step Solution
Key Concept
Market equilibrium distortions created by government price controls (ceilings and floors)