The town of Fairness has a law that says that wages should be high enough to ensure that all people can afford to buy enough food to feed their families. The law that sets food prices low enough to meet these requirements would be an example of a: a. minimum wage law. b. fair wage law. c. price ceiling. d. black market price. e. ration price.
The correct answer and explanation is:
The correct answer is c. price ceiling.
A price ceiling is a law or regulation that sets the maximum price that can be charged for a good or service, in this case, food. The purpose of a price ceiling is to make certain essential goods, like food, affordable for people, especially in situations where market prices may become too high for average consumers to afford. In the scenario described, the town of Fairness has set the food prices low enough to ensure that all people can afford to feed their families. This is exactly what a price ceiling aims to achieve by preventing food prices from rising above a certain level, ensuring accessibility.
A price ceiling is typically enacted in markets where the supply of a good is limited, and without regulation, prices could rise to a point where only a few individuals could afford to buy the product. In such cases, the government steps in to set a legal maximum price. However, while price ceilings can help make essential goods affordable, they can also lead to problems like shortages, as suppliers may not be willing to sell at the lower price. When the price is set too low, the quantity demanded might exceed the quantity supplied, causing a shortage of the good.
For example, if food prices are set too low under a price ceiling, suppliers may not find it profitable to produce enough food to meet demand, resulting in food scarcity. As a result, people may face difficulties finding enough food, even though prices are technically low. This is one of the trade-offs that policymakers must consider when deciding whether or not to implement a price ceiling.
In summary, a price ceiling ensures that food prices remain within reach for the general population, though it may come with unintended consequences like shortages.