Simple Application of Price Theory - SS2 Economics Past Questions and Answers - page 1
What is minimum price legislation?
A government-imposed minimum price for a good or service.
A government-imposed maximum price for a good or service.
A government subsidy paid to producers of a good or service.
A tax on the production of a good or service.
What is maximum price legislation?
A government subsidy paid to consumers of a good or service.
A government-imposed minimum price for a good or service.
A government-imposed maximum price for a good or service.
A tax on the consumption of a good or service.
What is the likely outcome of setting a minimum price above the equilibrium price?
No effect on the market outcome.
A shortage of the good or service.
A surplus of the good or service.
An increase in demand for the good or service.
What is the likely outcome of setting a maximum price below the equilibrium price?
A shortage of the good or service.
A surplus of the good or service.
No effect on the market outcome.
A decrease in demand for the good or service.
How can minimum price legislation affect market outcomes?
Minimum price legislation, or price floors, can lead to surpluses if the minimum price is set above the equilibrium price. This is because the quantity supplied exceeds the quantity demanded at the higher price, leading to a surplus of the good or service.
Why is maximum price legislation used?
Maximum price legislation, or price ceilings, is typically used to help consumers by ensuring that prices do not rise above a certain level. This can be especially important in markets where there is a limited supply of a good or service, as it can prevent prices from becoming unaffordable for some consumers.