Question

In: Economics

The non-binding price floor is the minimum legal price at which a good can be sold...

The non-binding price floor is the minimum legal price at which a good can be sold ______ the equilibrium price and the non-binding price ceiling is the maximum legal price at which a good can be sold _____ the equilibrium price.

Below: Below

Above: Below

Above: Above

Below: Above

If demand is ________, total revenue stays the same regardless of change in price because total revenue reaches its __________.

Elastic: Maximum

Inelastic: Minimum

Unit-elastic: Maximum

Unit-elastic: Minimum

Expert Solution

Since the price floor is the legal minimum price which can be charged and it is set above the equilibrium price. It leads surplus of outputs. So when the price floor is set above the equilibrium price, only then it is effective but when it is set either below the equilibrium price.

The price ceiling is a legal maximum price which can be charged by the sellers and it is set below the equilibrium price. The price ceiling imposed by the government leads shortage of goods.

If price ceiling is set below the equilibrium price, then it will be binding and if it is set above the equilibrium price, then it will be not binding.

Hence it can be said that the non-binding price floor is the minimum legal price at which a good can be sold below the equilibrium price and the non-binding price ceiling is the maximum legal price at which a good can be sold above the equilibrium price.

Hence option fourth is the correct answer.

2.

Since the elasticity of demand can be defined as the measurement of the degree of the responsiveness of the quantity demand due to the change in the price level.

Price elasticity of demand= % change in the quantity demand/ % change in the price

When the price elasticity of demand is unit elastic, then with change in the price, total revenue does not change. It means that TR reaches at its maximum.

Hence it can be said that if demand is unit elastic, total revenue stays the same regardless of change in price because total revenue reaches its maximum.

Hence option third is correct answer.

Rahul Sunny answered 2 years ago

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