From my basic econ knowledge, the answer is C. I didn't bother looking it up but did draw out some simple S/D charts.
An effective price floor (one that has the price set above the equilibrium price) will lead to overproduction and thus inefficiency. If you draw out the S/D graph, and then draw a horizontal line ABOVE the equilibrium point and use this as your price floor, you will notice that at this minimum price, the supply is greater than the demand (inefficiency). If the price floor is below the equilibrium price, than the market will continue to use the equilibrium (hence a price floor doesn't cause underproduction - why B isn't correct).
On the other side of the coin, a effective price ceiling, represented by a horizontal line at a price under the equilibrium, will cause increased demand and decreased supply. Thus a price ceiling causes a shortage/underproduction , and thus inefficiency. Also, know that a price ceiling that establishes a price over the equilibrium price doesn't change the equilibrium. S/D stay the same in this case, thus a price ceiling doesn't cause overproduction (why A isn't correct)
As far as D is concerned, I believe taxes end up shifting the supply curve upwards. Depending on the nature of the tax, and the actual physical supply curves, the tax is paid by both consumers and producers in various ratios. Taxes establish an equilibrium price that is above the normal (tax-free) equilibrium price, and a quantity that is below the normal (tax-free) equilibrium quantity. As far as efficiency/inefficiency I seem to remember different ways of how taxes work, but it escapes me at the moment. As of now, I'm just thinking about over/under production causing inefficiency, as taxation sets a new equilibrium you don't have over/under production ance hence still an efficient situation... or something like that
Wow... common sense makes my head hurt... luckly i'm done with my engineering finals 🙂 Good luck to you, I'll drink a beer for ya!
