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

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    Understanding Market Mechanisms: Analyzing Supply, Demand, and Price Controls Question 1 A binding price floor means that: Answer 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. 5 points Question 2 A market is in equilibrium: Answer 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. 5 points Question 3 A market: Answer 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.

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    always requires face - to - face contact between buyer and seller. 5 points Question 4 A rightward shift in the demand curve for product C might be caused by: Answer 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 . 5 points Question 5 An effective price ceiling will: Answer induce new firms to enter the industry. result in a product surplus . result in a product shortage. clear the market. 5 points Question 6 An increase in the price of a product will reduce the amount of it purchased because: Answer supply curves are upsloping. the higher price means that real incomes have risen.

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