Question

QUESTION 5

Suppose the government has imposed a price ceiling on cellular phones. Which of the following events could transform the price ceiling from one that is binding to one that is not binding?

	a.	A technological advance makes cellular phone production less expensive.
	b.	The components used to produce cellular phones become more expensive.
	c.	Traditional land line phones become more expensive.
	d.	Cellular phones become more popular.

1 points   

QUESTION 6

A binding price ceiling

(i)	causes a surplus.
(ii)	causes a shortage.
(iii)	is set at a price above the equilibrium price.
(iv)	is set at a price below the equilibrium price.

	a.	(ii) only
	b.	(ii) and (iv) only
	c.	(iv) only
	d.	(i) and (iii) only

1 points   

QUESTION 7

If a price floor is not binding, then

	a.	the equilibrium price is above the price floor.
	b.	the equilibrium price is below the price floor.
	c.	there will be a surplus in the market.
	d.	Both a) and c) are correct.

1 points   

QUESTION 8

A binding price floor

(i)	causes a surplus.
(ii)	causes a shortage.
(iii)	is set at a price above the equilibrium price.
(iv)	is set at a price below the equilibrium price.

	a.	(ii) and (iv) only
	b.	(iii) only
	c.	(i) and (iii) only
	d.	(i) only

Answer 1

1> A technological advance makes cellular phone production less expensive.

Reason

This technological progress will increase the supply, thus the price ceiling may not remain binding.

2> (ii) and (iv) only

Reason

Since it is binding, this will be a lower price and due to that, it will create a shortage of product.

3> the equilibrium price is below the price floor.

Since it is non-binding, having a price floor will not have any value in the market.

4> (i) and (iii) only

The reason will be the same as the reason in the 2nd question.