Problem

Why are the factors that shift the demand for a p…

Problem 25 Hard Difficulty

If the government imposed a federal interest rate ceiling of 20% on all loans, who would gain and who would lose?

Answer

Price-ceiling refers to the minimum level of price which is set below equilibrium price level. As per
the information given, if government imposed interest rate ceiling of 20$\%$ , then it would affect
both borrowers and lenders.
Borrowers would gain because they could borrow more at lower interest rate and lenders would
lose because lending for them is no more profitable. At interest rate ceiling, lenders would get
less interest for fund they lend.

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Principles of Microeconomics for AP® Courses

Chapter 4

Labor and Financial Markets

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Video Transcript

Let's cover example of price ceiling. Here we have a financial market, so the price is the interest rate. Um, let's say that the government imposes a price ceiling at 20%. That's this red line here who would gain and with loose, uh, first of all leads. Let's hear we're shooting. The pricing is binding. If the price ceiling was above the Calabria, then it wouldn't affect anyone. Does he delivery miss below the practically, But again, to make this more interesting, let's say the price ceiling is binding, therefore below the equilibrium Well, for one that people who benefit are going to be the consumers because they're able to get, um, low noble funds at a lower interest rate. However, one must be very careful here because with this price feeling you have that the quantity demanded off vulnerable funds is greater than the quantity supply. So there's a shortage also, even if we look at the Taliban, that could exist, which is at this point right, this was the past equilibrium. The number of transactions that are going to occur are going to be less right. So even though consumers are getting this good at a lower price. The getting low noble funds of lower interest rate they're going to be less people were able to get these loans because there aren't that many suppliers had this interest rate. So in some ways, that consumers game in, some consumers lose out because they won't be able to find, uh, people to give them this loan. Uh, but in all cases, the producer's here. The suppliers of vulnerable funds do miss out because again, they don't at that interest rate that won't want to loan their funds.

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