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Chapter 4: Q.12 (page 104)

Select the correct answer.

A price ceiling will usually shift:

a. demand

b. supply

c. both

d. neither

Short Answer

Expert verified

d.neither.

Step by step solution

01

Definition

A price ceiling is an upper limit imposed on the price of a product. This limit is imposed to protect the consumers in the market to ensure that they don't have to pay a price too high.

02

Explanation

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

03

Conclusion

Therefore, it will produce excess demand because the quantity demanded on the demand curve will be more than the quantity delivered on the supply curve.

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Most popular questions from this chapter

If a usury law limits interest rates to no more than 35%, what would the likely impact be on the amount of loans made and interest rates paid

What is the “price” commonly called in the labor market?

Name some factors that can cause a shift in the supply curve in labor markets.

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.

Table 4.6 shows the amount of savings and

borrowing in a market for loans to purchase homes, measured in millions of dollars, at various interest rates. What is the equilibrium interest rate and quantity in the capital financial market? How can you tell? Now, imagine that because of a shift in the perceptions of foreign investors, the supply curve shifts so that there will be $10 million less supplied at every interest rate. Calculate the new equilibrium interest rate and quantity, and explain why the direction of the interest rate shift makes intuitive sense.

Interest Rate
Qs
Qd
5%
130170
6%135150
7%140140
8%145135
9%
150125
10%155110
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