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Market Dynamics: Analyzing The Laws Of Supply And Demand

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    Market Dynamics: Analyzing the Laws of Supply and Demand Question 1 A binding price floor means that: inflation is severe in this particular market. sellers are artificially restricting supply to raise price. government is imposing a maximum legal price that is typically below the equilibrium price. government is imposing a minimum legal price that is typically above the equilibrium price. Answer government is imposing a maximum legal price that is typically below the equilibrium price. 5 points Question 2 A market is in equilibrium: provided there is no surplus of the product. at all prices above that shown by the intersection of the supply and demand curves. if the amount producers want to sell is equal to the amount consumers want to buy. whenever the demand curve is downsloping and the supply curve is upsloping. Answer: if the amount producers want to sell is equal to the amount consumers want to buy. 5 points Question 3 A market:

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    exhibits upsloping demand and downsloping supply curves. entails the exchange of goods but not services. is an institution or mechanism that brings together buyers and sellers. always requires face - to - face contact between buyer and seller. Answer: is an institution or mechanism that brings together buyers and sellers. 5 points Question 4 A rightward shift in the demand curve for product C might be caused by: an increase in income if C is an inferior good. a decrease in income if C is a normal good. a decrease in the price of a product that is a close substitute for C. a decrease in the price of a product that is complementary to C. Answer: a decrease in the price of a product that is a close substitute for C. 5 points Question 5 An effective price ceiling will: induce new firms to enter the industry. result in a product surplus. result in a product shortage.

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