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Chapter 4: Q.11 (page 104)

Select the correct answer. A price floor will usually shift: a. demand b. supply c. both d. neither Illustrate your answer with a diagram

Short Answer

Expert verified

Neither

Step by step solution

01

Step.1 Introduction

A price floor is a lower limit imposed on the price of a productby the governemtto protect the sellers in the market. A consumer cannot purchase at a price lower than this limit.

02

Step.2 Explanation

A price floor does not causes any shift in the demand curve or the supply curve. However, a binding price floor can cause a movement on the demand and supply curves. At a price higher than the equilbrium level, the quantity demand would be lower than quantity supplied causing a surplus.

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Most popular questions from this chapter

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

In the labour market, what causes a movement along the demand curve? What causes a shift in the demand curve?

Whathappenstothepriceandthequantityboughtandsoldinthecocoamarketifcountriesproducingcocoaexperienceadroughtandanewstudyisreleaseddemonstratingthehealthbenefitsofcocoa?Illustrateyouranswerwithademandandsupplygraph.

How do economists define equilibrium in financial markets?

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.

  1. The number of people at the most common ages for home-buying increases.
  2. People gain confidence that the economy is growing and that their jobs are secure.
  3. Banks that have made home loans find that a larger number of people than they expected are not repaying those loans.
  4. Because of a threat of a war, people become uncertain about their economic future.
  5. The overall level of saving in the economy diminishes.
  6. The federal government changes its bank regulations in a way that makes it cheaper and easier for banks to make home loans.
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