Module 7

Price Floor

An established price which is above the equilibrium.

Results in a surplus. Calculated by subtracting the quantities (i.e. Supply quantity - Demand quantity)

Price Ceiling/Cap

An established price which is below equilibrium.

Results in a shortage. Calculated by subtracting the quantities (i.e. Demand quantity - Supply quantity)

Why create shortages? Because it helps sell out.

Vertical Supply Line

Occurs if the supply is finite.