In: Economics
The European Union countries have been accumulating butter mountains and wine lakes. These surpluses are the result of:
price floors for agricultural products that are below equilibrium market prices
price floors for agricultural products that are above equilibrium market prices
price ceilings for agricultural products that are below equilibrium market prices
price ceilings for agricultural products that are above equilibrium market prices
Which of the following is not an effect of a minimum price (price floor) that is set above the equilibrium price?
quantity supplied increases
quantity demanded decreases
an inefficient outcome is produced
quantity demanded will exceed quantity supplied
Which of the following government interventions causes a shortage in the market?
price floor on the agriculture market
minimum wage on the labor market
increase in sales tax on the clothing market
rent ceiling on the housing market
Question 1
These surpluses are due to the result of price floors for agricultural products that are above equilibrium market prices.
Price flooring is done in order to safeguard some industry from being exploited and to ensure them a minimum price. If the minimum price is such that it's above the market equilibrium price for butter and wines, then the producers would be willing to supply more and more of these goods. However, there will not be enough demand because at prices so high, very few people will be able to buy them.
As a result, there will emerge market surpluses of these goods resulting from excess supply.
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Question 2
When a minimum price (price floor) that is set above the equilibrium price, the quantity demanded will be less than the quantity supplied. It will never exceed the quantity supply as less and less people will demand at prices above the market equilibrium.
Hence "quantity demanded will exceed quantity supplied" is NOT an effect of minimum price (price floor) that is set above the equilibrium price
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Question 3
When there is a maximum price mandated by the government to be charged on a particular good and service, we call it a price ceiling. Price ceiling is done such a way that the price fixed by the government is below the market equilibrium price. As a result, there will emerge excess demand for that good and service at that price, leading to shortage. The supply at a lower price will be significantly less.
Rent ceiling on housing market will thus cause shortage in the market.