Question

1. Recall that total revenue is price times quantity (or P x Q). Which of the following will clearly cause a decrease in the total revenue for the entire market?

A. Buyers’ income decreases and sellers expect the price to decrease

B. Buyers' income increases

C. Tastes and preferences for the product decline

D. The implementation of an effective price floor on the market

E. None of the above

2. If a market is initially in equilibrium, what is the effect of a price ceiling set below the equilibrium price?

A. A shortage for a good or service

B. A surplus for a good or service

C. An increase in the amount of a good or service bought and sold

D. A shift of the demand curve to the right

E. No effect

3. If a market is initially in equilibrium, what is the effect of a price ceiling set above the equilibrium price?

A. A shortage for a good or service

B. A surplus for a good or service

C. An increase in the amount of a good or service bought and sold

D. A shift of the demand curve to the right

E. No effect

4. If a market is initially in equilibrium, what is the effect of a price floor set below the equilibrium price?

A. A shortage for a good or service

B. A surplus for a good or service

C. An increase in the amount of a good or service bought and sold

D. A shift of the demand curve to the left

E. No effect

5. If a market is initially in equilibrium, what is the effect of a price floor set above the equilibrium price?

A. A shortage for a good or service

B. A surplus for a good or service

C. An increase in the amount of a good or service bought and sold

D. A shift of the demand curve to the right

E. No effect

Answer 1

1) Answer: Buyers income decrease and sellers expect the price to decrease.

When the buyer income decrease the consumption of any product decreases which leads to fall in demand for the product. So to overcome that seller will decrease the price of the product. Thus leading to fall in total revenue of the product. Same will happen with the enitre market.

5) Answer: Surplus for a good or service.

When the price floor is set higher than equillibrium price the supplier will supply more goods and services which leads to excess supply of the product or service. But producers will face loss when the price floor is set above equllibrium price as the consumer will not demand that many goods and services at a higher price.

4) Answer: No effect

If the price floor is below the equllibrium market price there will be no effect on the supply and demand of the demand of the product. As price floor is the minimum price below which the good or service is not sold. So already the good is sold at a price higher than price floor, so there will be no effect.

2) Answer: Shift in demand curve to right

When there is a price ceiling below the market equllibrium than there will be excess demand for good or service where the supply will have a shortage as supplier won't supply the product at a lower price. When there is an increase in demand there will be shift in demand curve to right side.

3) Answer: No effect.

Price ceiling is the maximum price at which a particular good or service can be sold. So when the price ceiling is above the equillibrium price there will be no effect as the good is been sold at an equillibrium price which is the market price where both consumer and producer are willing to pay and sell the good.