A student makes the following argument: A price floor reduces the amount of a pr
ID: 1139248 • Letter: A
Question
A student makes the following argument: A price floor reduces the amount of a product that consumers buy because it keeps the price above the competitive market equilibrium. A price ceiling, on the other hand, increases the amount of the product that consumers buy because it keeps the price below the competitive market equilibrium. Do you agree with the student's reasoning? To address this, first, determine a binding price floor and a binding price ceiling. A binding price floor will be A binding price ceiling will be A price ceiling O A. increases the amount of the product that consumers buy because it lowers the price. the equilibrium price. the equilibrium price. O B. increases the amount of the product that consumers buy because it creates a surplus. C. does not increase the amount of the product that consumers buy because it creates a shortage. 0 D. does not increase the amount of the product that consumers buy because it creates a surplus. OE. both a and b.Explanation / Answer
A binding price floor will be above the equilibrium price because price floor is the minimum price that can be charged
A binding price ceiling will be below the equilibrium price because price ceiling is the maximum price that can be charged.
A price ceiling C. does not increase the amount of the product that consumers buy because it creates a shortage and benefits consumers
yes i agree with the student reasoning
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