Question

In: Economics

The European Union countries have been accumulating butter mountains and wine lakes. These surpluses are the...

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

Solutions

Expert Solution

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.

...........................

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

..........................

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.

Rahul Sunny answered 1 year ago
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