Question

Refer to the graph below for questions 7-9: Price Supply 15 12 Demand 40 50 80 104 130 Quantity Suppose the market in the graph is originally in equilibrium at a price of $15. If the government implements a price ceiling at $20, what will be the market outcome? 7. a. Surplus of 90 units b. Surplus of 54 units c. Shortage of 90 units d. Shortage of 54 units e. Market will remain in equilibrium with a quantity of 80. If the market is in equilibrium, then the government implements a price ceiling at $12, the quantity demanded will change by a greater amount than the quantity supplied 8. a. True b. False Suppose the market in the graph is originally in equilibrium at a price of $15. If the government imposes a price floor at $20, what will happen to quantity demanded? 9. a. It will increase by 40 b. It will decrease by 40 c. It will increase by 50 d. It will decrease by 50 e. There will be no change in quantity supplied with this price floor

Answer 1

.

A price ceiling is a government mandated price control on a good that ensures the highest price that the producer can charge for a good. In the case of the price ceiling, the price cannot move up above the price ceiling but can fall below this level. A price floor is a government mandated price control on a good that ensures the lowest price that the consumer can pay for a good. In the case of the price floor, the price cannot move below the price floor but can rise above this level.

7.

In the case of price ceiling above market equilibrium the market outcome does not change, because the price can fall below this level and ensures market equilibrium at P=15.

Therefore, the correct option is: (e)

8.

For the price ceiling at $12, the market equilibrium price will be $12. At this price the quantity demanded will be 104 unit and quantity supplied will be 50 units. Then the change in quantity demanded is (104-80)=24 and change in quantity supplied is (80-50)=30 units. Then the change in quantity supplied is higher than the change in quantity demanded.

Therefore, the correct option is: FALSE

9.

At the price floor of $20, above market equilibrium, the market price changes to $20. then the quantity demanded at this price is 40. This is lower the equilibrium quantity by 40 units.

Therefore, the correct option is: (b)