Understanding Market Mechanisms: Analyzing Supply, Demand, And Price Controls

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Understanding Market Mechanisms: Analyzing Supply, Demand, and Price ControlsQuestion 1A binding price floor means that:Answerinflation 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 equilibriumprice.government is imposing a minimum legal price that is typically above the equilibrium price.5 pointsQuestion 2A market is in equilibrium:Answerprovided 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.5 pointsQuestion 3A market:Answerexhibits upsloping demand and downsloping supply curves.entails the exchange of goods but not services.is an institution or mechanism that bringstogether buyers and sellers.

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always requires face-to-face contact between buyer and seller.5 pointsQuestion 4A rightward shift in the demand curve for product C might be caused by:Answeran increase in income if C is an inferior good.adecrease 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.5 pointsQuestion 5An effective price ceiling will:Answerinduce new firms to enter the industry.result in a product surplus.result in a product shortage.clear the market.5 pointsQuestion 6An increase in the price of a product will reduce the amount of it purchased because:Answersupply curves are upsloping.the higher price means that real incomes have risen.

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