Assume that an effective government-imposed price on a particular good. The price is set below equilibrium....

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:

Solutions

Expert Solution

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.

Hope you got the answer.

Kindly comment for further explanation.

Thanks

Rahul Sunny answered 2 months ago

Next > < Previous

Related Solutions

Assume that an effective government-imposed price on a particular good. The price is set below equilibrium....

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

Assume the government sets the price for a good below market equilibrium. Briefly explain what will...

Assume the government sets the price for a good below market equilibrium. Briefly explain what will happen to demand and supply and what kind of factors will determine the discrepancy between them. How will it affect the prices of substitutes? () *Use diagrams where relevant

If a price floor above the equilibrium price is imposed by government in a market: A....

If a price floor above the equilibrium price is imposed by government in a market: A. Shortages of the commodity will develop B. The quantity demanded will exceed the quantity supplied C. The quantity supplied will exceed the quantity demanded D. The free-market equilibrium price and quantity will still be realized

Assume a price floor is imposed in the market for milk at the current equilibrium price,...

Assume a price floor is imposed in the market for milk at the current equilibrium price, and that a price ceiling is imposed in the market for natural gas at the current equilibrium price. What will a decrease in demand for both milk and natural gas create? a. Shortages in both the milk and natural gas markets. b. Surpluses in both the milk and natural gas markets. c. A surplus in the milk market and a shortage in the natural...

A government that imposes a price floor above the equilibrium price of a good will cause:

One of the consequences of a government imposed rent control ceiling with the ceiling set below...

One of the consequences of a government imposed rent control ceiling with the ceiling set below the equilibrium rental price is: Select one: a. a surplus of apartments. b. a shortage of apartments. c. decreased search activity of people who want to rent apartments. d. an increase in maintenance and additional amenities like swimming pools and free cable

If a maximum price is set below the equilibrium price, [1] there will be a shortage....

If a maximum price is set below the equilibrium price, [1] there will be a shortage. [2] sellers will find it difficult to find willing buyers. [3] market equilibrium will occur despite government regulation. [4] all buyers will be able to purchase their desired quantities.

Assume that you are able to determine that the equilibrium price for a good will definitely...

Assume that you are able to determine that the equilibrium price for a good will definitely decrease, and the equilibrium quantity will definitely increase. Which of the following MUST have occurred for you to be able to make these conclusions? a. Demand decreased and supply decreased b. Demand increased. c. Demand decreased and supply increased. d. Demand increased and supply decreased. e. Supply increased. When demand and supply both change in the same direction (for example, they both decrease), the...

Suppose the government imposes a price ceiling above the equilibrium price of a given good. d)Which...

Suppose the government imposes a price ceiling above the equilibrium price of a given good. d)Which of the following is the most likely result? a)Some other rationing device will emerge to allocate the good among buyers. b)Some buyers and sellers will be willing to risk breaking the law in order to exchange the good at a price above the equilibrium price since there would be a shortage of the good at the price ceiling. c)No change will occur in the...

• In the summer of 1979, our government imposed a ‘price ceiling” - or price control—on...

• In the summer of 1979, our government imposed a ‘price ceiling” - or price control—on gasoline. Why did they do this? What was their goal? 2. What went wrong, exactly? 3. Often, when the price of a product or service is held “too low”, a shortage develops and ‘FOUR ALTERNATIVE FORMS OF ALLOCATION’ must step in to take the place of the price system (the ‘highest bidder’ system). What are these four alternative methods? Please describe each one. 4....

Subjects