In order for a price ceiling to have an effect on the market, must it be set above or below the equilibrium price? Why?
What will be an ideal response?
In order to have an effect, the price ceiling must make the equilibrium price illegal and so it must be set below the equilibrium price. A price ceiling is the highest price that can legally be charged for the product. If it is set above the equilibrium price, the equilibrium price is less than the ceiling price and hence is legal. Therefore the price and the quantity are not affected. However if the ceiling price is less than the equilibrium price, the equilibrium price becomes illegal. As a result, the price ceiling will have an impact on the market by lowering the price. With the lower price, the quantity demanded increases while the quantity supplied decreases so that a shortage of the product emerges.
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The fact that output gaps will not last indefinitely, but will be closed by rising or falling inflation is the economy's:
A. income-expenditure multiplier. B. self-correcting property. C. short-run equilibrium property. D. long-run equilibrium property.
Free riding is primarily a characteristic of which type of good?
A) a pure private good B) a pure public good C) a club good D) a common pool resource
Starting from long-run equilibrium, a war that raises government purchases results in ________ output in the short run and ________ output in the long run.
A. lower; potential B. higher; potential C. higher; higher D. lower; higher
This table shows the different combinations of goods that Jack can consume, given that his income to spend on these two items is $10.
Considering the information in the table shown, if we assume Jack is a rational utility maximizer, then we can predict he will buy which bundle with his $10?
A. A
B. B
C. C
D. D