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Price Ceilings and the marginal rate of substitution

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1. What entity establishes a price ceiling and does it require government sanction for violators? Will it result in a surplus or a shortage?

2.Does the marginal rate of substitution increase or decrease as a point moves downward and to the right along a given indifference curve?

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Price ceilings must generally be established by an entity with authority to enforce them through penalties. This is because price ceilings will result in shortages. People will be willing to buy more of the good at higher ...

Solution Summary

How price ceilings affect market outcomes. How the marginal rate of substitution varies as one moves along an indifference curve.

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