Question

Please answer the question and explain why

1. A shortage or excess demand for a product in a competitive market will be created by a price ______ set _____ the equilibrium price.

                  a) floor; below                     b) floor; above                      c) ceiling; above    d) ceiling; below

                  e) None of the above are correct.

2. Suppose consumers consider bagels and cream cheese to be complimentary goods.   A ________ will cause a fall in the price of bagels and a fall in the quantity sold of cream cheese?

a) rise in the price of milk                                                   c) fall in the price of flour

                  b) fall in the price of milk                                                    d) rise in the price of flour

Answer 1

1) D) This is because when the ceiling price is set below the market price, the quantity supplied is less than the quantity demanded resulting a situation of excess demand or shortage of the good

2) A) When milk price rises, the input cost of making cream cheese so supply of cream cheese decreases. This increases its price and reduces its quantity demanded and supplied, Now consumers who consume both bagels and cream cheese together, will now buy fewer units of both since one of them is expensive. Hence demand for bagels decreases and so does its price.