Question

When a government imposes a price ceiling below the market price on a product or service, which of the following happens?

a.Total consumer surplus rises because consumers now pay less for the product

b.The total amount of the product or service that is traded in the market rises due to the lower price

c.A shortage of supply relative to demand results

A per unit tax on a good which is levied on the consumer will usually cause which of the following?

a.A rotation in the demand curve which changes its slope.

b.The price to rise by the amount of the per unit tax

c.The price to rise by somewhat less than the per unit tax

Which of the following is/are held constant when writing a demand equation for a good in the form Qd = a + b*

a.The quantity demanded of the good

b.The own price of the good.

c.The income of the potential consumers of the good.

Answer 1

1. Ans: A shortage of supply relative to demand results

Explanation:

At a price below the equilibrium price, quantity demanded will be more than quantity supplied. So, a shortage occurs.

Thus, option [c] is correct answer.

2. Ans: The price to rise by somewhat less than the per unit tax.

Explanation:

when a per unit tax on a good which is levied on the consumer, the demand curve will shift leftward. The total tax burden will be born by both buyer and seller. Therefore, the price will rise by somewhat less than the per unit tax.

Thus, option [c] is correct answer.

3. Ans: The income of the potential consumers of the good.

Explanation:

According to law of demand, demand function states that changes in quantity demanded due to change in price keepibf other factors such as consumer's income as unchanged.

Thus, option [c] is correct answer.