Mikroeconomic : Supply , Demand and Government Policies

What is price ceiling ?

• A legal minimum on the price at which a good can be sold

• A legal maximum on the price at which a good can be sold

A price floor

• Set a legal maximum on the price at which a good can be sold

• Always determines the price at which a good must be sold

• Set a legal minimum on the price at which a good can be sold

• Is not a binding constraint if it is set above the equilibrium price

A binding price ceiling creates

• A shortage

• A surplus

• An equilibrium

• A shortage or surplus depending on whether the price ceiling is set above or below the equilibrium price

Within the supply and demand model, a tax collected from the buyers of a good shifts the

• Demand curve upward by the size of the tax per unit

• Demand curve downward by the size of the tax per unit

• Supply curve upward by the size of the tax per unit

• Supply curve downward by the size of the tax per unit

The burden of a tax falls more heavily on the sellers in a market when

• A demand is inelastic and supply is elastic

• Demand is elastic and supply is inelastic

• Both supply and demand are elastic

• Both supply and demand are inelastic

When we use the model of supply and demand to analyze a tax collected form the buyers, we shift the demand curve upward by the size of the tax

• True

• False

A price floor in a market always creates a surplus in that market

• True

• False

A price floor set above the equilibrium price is a binding constraint

• True

• False

A price ceiling set below the equilibrium prices causes a surplus

• True

• False

For a price ceiling to be a binding constraint on the market, the government must set it

• Above the equilibrium price

• Below the equilibrium price

• Precisely at the equilibrium price

• At any price because all price ceilings are binding constraints