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Chapter 4: Q.10 (page 104)

A price ceiling will have the largest effect:

a. substantially below the equilibrium price. b. slightly below the equilibrium price.

c. substantially above the equilibrium price. d. slightly above the equilibrium price.

Sketch all four of these possibilities on a demand and supply diagram to illustrate your answer

Short Answer

Expert verified

a. substantially below the equilibrium price.

Step by step solution

01

Definition

Financial Markets:

The markets in a country that oversee the trading of derivatives and bonds at various times are referred to as financial markets. These markets are critical because they connect investors and businesses, providing the financial backing that businesses require to operate effectively in the market. In general, financial markets serve as a conduit between lenders and borrowers in the economy.

02

Explanation

A price ceiling keeps prices from rising over a specific point, but it has no effect on prices below that point. If it is significantly below the equilibrium price, it will have the greatest impact on producing excess demand. These scenarios are depicted in the diagram below.

03

Conclusion

Therefore, the price ceiling will have no effect on producing surplus demand if it is set substantially or slightly above the equilibrium price. These scenarios are depicted in the diagram above. So the correct option isa. substantially below the equilibrium price.

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Most popular questions from this chapter

Why are the factors that shift the demand for a product different from the factors that shift the demand for labor? Why are the factors that shift the supply of a product different from those that shift the supply of labor?

Identify each of the following as involving either demand or supply. Draw a circular flow diagram and label the flows A through F. (Some choices can be on both sides of the goods market.)

a. Households in the labor market

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d. Households in the goods market

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Predict how each of the following economic changes will affect the equilibrium price and quantity in the financial market for home loans. Sketch a demand and supply diagram to support your answers.

a. The number of people at the most common ages for home-buying increases.

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e. The overall level of saving in the economy diminishes.

f. The federal government changes its bank regulations in a way that makes it cheaper and easier for banks to make home loans.

Would usury laws help or hinder resolution of a shortage in financial markets?

During a discussion several years ago on building a pipeline to Alaska to carry natural gas, the U.S. Senate passed a bill stipulating that there should be a guaranteed minimum price for the natural gas that would flow through the pipeline. The thinking behind the bill was that if private firms had a guaranteed price for their natural gas, they would be more willing to drill for gas and to pay to build the pipeline.

a. Using the demand and supply framework, predict the effects of this price floor on the price, quantity demanded, and quantity supplied.

b. With the enactment of this price floor for natural gas, what are some of the likely unintended consequences in the market?

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