Question

Assume that an effective government-imposed price on a particular good. The price is set below equilibrium. Now, let the imposed price be removed. True, False, or Uncertain: Consumer spending on the good will increase only if demand is inelastic.

Explain your answer. TRUE FALSE Uncertain Explanation:

Answer 1

The price below the equilibrium is called price floor. The price cannot fall below this price .Price ceilings only become a problem when they are set below the market equilibrium price. When the ceiling is set below the market price, there will be excess demand or a supply shortage. Producers won't produce as much at the lower price, while consumers will demand more because the goods are cheaper.

The correct option is (False).

The demand needs to be elastic, only than the consumer spending will increase.

The mentioned statement is false.Consumer spending on the good will increase only if demand is elastic. Inelastic demand is when the buyer's demand does not change as much as the price changes.When the price increases, people will still purchase roughly the same amount of the good or service as they did prior to the increase because their needs stay the same.

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