Question

Question 1 Given the following diagram, answer questions 1.1 to 1.3: Price Q3 QEQo Q2 04 Quantity 1.1 P2 represents a price imposed by the government. What is the quantity of this good that would be exchanged in the market? A) Q. B) O C) D) Q3 E) Q. 1.2 To be effective, a price floor must lie A) above P, but below P. B) below P, but above P, C) anywhere above P, D) anywhere below P. E) within the boundaries of P, and P. 1.3 Suppose P's represents a price imposed by the government. The result would be A) excess supply of Q,Q4 B) excess supply of Q,Qo C) excess demand of Q.Q. D) excess demand of Q,Q. E) excess demand of Q,Q.

Answer 1

1.1. At a price of P2 the quantity demanded decrease to Q1. The total quantity traded will be equal to Q1.

Answer: B. Q1.

1.2. A price floor below the equilibrium price (P1) is ineffective. But effective only if it is above the equilibrium price.

Answer: C. Anywhere above P1.

1.3. At a price of P3, the quantity demanded exceeds the quantity supplied by Q3 Q4. Quantity supplied is Q3 but the quantity demanded is Q4. There is an excess demand equal to Q3 Q4.

Answer: D. Excess demand of Q3 Q4.