Question

5. (1)If there is a price ceiling of $10,000/month for a 2 bedroom apartment, based upon the current market, what would you expect to happen? 6. (1)If the government imposed a price ceiling of 50 cents for a gallon of gasoline, would there be a surplus. shortage or do you lack information to make a good guess? Explain your answer for the point. 7. (1)A binding price floor will lead to the quantity supply being (greater than OR less than or equal to the quantity demanded. Which is it? 8. (1)If the price is rising for a good or service, what signal does that send to suppliers?

Answer 1

Answer.

5. Since the country is not mentioned in the question, we are not clear for which current makret to refer.

But in reference to the question, price ceiling indicates the maximum amount that a person can charge for its commodity.

If the current market price is below the 10,000$, than the ceiling is not binding and market will function at equilibrium. However, if the current market price is above the ceiling price, ceiling would be binding and there will excess demand in the market.

6. The question lacks the information about the market price.

However, If the current market price is below the 50cents, than the ceiling is not binding and market will function at equilibrium. However, if the current market price is above the ceiling price, ceiling would be binding and there will shortage in the market.

7. Price floor sets the minimum amount that can be charged for the commodity. A binding price floor means floor price set is above the market price. The will lead to situation of excess supply,i.e., quantity supplied being greater than qunatiqu demanded.

8. If a price is rising, this will indicate suppliers with the new opportunity to make higher profits. So, existing firms will put more resources into the production of the commodity and/or new firms will also enter the market. Hence, supply in the market for the commodity would increase.