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Chapter 3: Q 9. (page 78)

What would be the impact of imposing a price floor below the equilibrium price?

Short Answer

Expert verified

A price floor below equilibrium has no effect.

Step by step solution

01

Step 1. Define equilibrium price.

The equilibrium price is the point at which the supply of commodities equals the demand for them.

02

Step 2. What effect would establishing a price floor below the equilibrium price have?

A price ceiling is refers to a legal maximum price, but as long as the equilibrium price is lower than the former, the market will choose it. To put it another way, a price floor below equilibrium has no effect.

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Most popular questions from this chapter

Review Figure 3.4 again. Suppose the price of gasoline is \(1.00. Will the quantity demanded to be lower or higher than at the equilibrium price of \)1.40 per gallon? Will the quantity supplied be lower or higher? Is there a shortage or a surplus in the market? If so, of how much?

In an analysis of the market for paint, an economist discovers the facts listed below. State whether each of these changes will affect supply or demand, and in what direction.

a. There have recently been some important cost-saving inventions in the technology for making paint.

b. Paint is lasting longer, so that property owners need not repaint as often.

c. Because of severe hailstorms, many people need to repaint now.

d. The hailstorms damaged several factories that make paint, forcing them to close down for several months.

What is the effect of a price ceiling on the quantity demanded of the product? What is the effect of a price ceiling on the quantity supplied? Why exactly does a price ceiling cause a shortage?

Table 19. 5 illustrates the market's demand and supply for cheddar cheese. Graph the data and find the equilibrium. Next, create a table showing the change in quantity demanded or quantity supplied, and a graph of the new equilibrium, in each of the following situations:

a. The price of milk, a key input for cheese production, rises, so that the supply decreases by 80 pounds at every price.

b. A new study says that eating cheese is good for your health, so that demand increases by 20% at every price.

Why do economists use the ceteris paribus assumption?
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