When the government sets a price floor which is below the equilibrium price
A) a surplus will develop.
B) a shortage will develop.
C) the equilibrium price will be maintained.
D) a price ceiling will follow.
Answer: C
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The figure above shows Clara's demand for CDs. At a price of $20 for a CD, the value of Clara's total consumer surplus for all the CDs she buys is
A) $40. B) $30. C) $20. D) $4.
Adverse selection is the tendency for people who accept contracts to be those who
A) buy goods and then regret it later. B) buy goods for more than their own reservation price. C) plan to use private information to the disadvantage of the less well-informed party. D) engage in a number of searches larger than that specified in the contract.
Suppose two neighbors share a park. One neighbor, Al, leaves trash in the park. This bothers the other neighbor, Bert. According to Coase's theorem, one necessary condition to alleviate the externality is that
A) Al is fined by the government. B) Al has the right to leave trash and Bert cannot do anything about it. C) Bert has the right to a clean park and Al cannot leave trash. D) Either Al or Bert owns the park.
Refer to the above figure. A shortage occurs if the government imposes
A) a price floor at $60. B) a price floor at $20. C) a price ceiling at $60. D) a price ceiling at $20.