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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

d. neither

Step by step solution

01

Definition

A price floor is a lower limit imposed on the price of a product by the government. This limit is imposed to protect the sellers.

02

Explanation 

Neither. A change in demand or supply indicates that at any given price, more or less is demanded or provided. A price floor has no effect on the demand or supply curves. If the price floor is set higher than the equilibrium, the quantity supplied on the supply curve will exceed the quantity required on the demand curve, resulting in excess supply.

03

Conclusion

Option d is the right answer.

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Most popular questions from this chapter

Other than the demand for labor, what would be another example of a “derived demand?”

Imagine that to preserve the traditional way of life in small fishing villages, a government decides to impose a price floor that will guarantee all fishermen a certain price for their catch.

a. Using the demand and supply framework,

predict the effects on the price, quantity

demanded, and quantity supplied.

b. With the enactment of this price floor for fish, what are some of the likely unintended

consequences in the market?

c. Suggest some policies other than the price floor to make it possible for small fishing villages to continue.

Which of the following changes in the financial market will lead to an increase in the quantity of loans made and received:

a. a rise in demand

b. a fall in demand

c. a rise in supply

d. a fall in supply

Whether the product market or the labor market, what happens to the equilibrium price and quantity for each of the four possibilities: increase in demand, decrease in demand, increase in supply, and decrease in supply.

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.

b. People gain confidence that the economy is growing and that their jobs are secure.

c. Banks that have made home loans find that a larger number of people than they expected are not repaying those loans.

d. Because of a threat of a war, people become uncertain about their economic future.

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.
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