Question

1. In 2016, after a hundred years of unsuccessful attempts, the Chicago Cubs finally won the baseball World Series. There was a surge in demand for Cubs baseball caps and T-shirts as more people became fans that year. At about the same time there was blight in the cotton fields that reduced the quantity of cotton to make the caps and T-shirts. Describe what the new equilibrium price and quantity is like compared with the prior year’s Cubs caps and T-shirt before the win and the reduced supply of cotton?

A. With the demand shifting to the left, and supply shifting to the right, the equilibrium price and quantity for Cubs caps and T-shirts decreased from 2015.

B. Supply and demand curves have shifted to the right and the equilibrium price and quantity for Cubs caps and T-shirts has increased since 2015.

C. The demand curve shifted to the right, the supply curve shifted to the left, the equilibrium price for Cubs caps and T-shirts increased from 2015 and it is impossible to determine the effect on the quantity.

2. The main reason price ceilings are set is so that consumer prices

A. will be higher.

B. will remain at equilibrium.

C. will be lower.

Answer 1

1. Ans - C) The demand curve shifted to the right, the supply curve shifted to the left, the equilibrium price for Cubs caps and T-shirts increased from 2015 and it is impossible to determine the effect on the quantity.

Explanation:

As demand increases compared to 2015 so demand shifted to the right and due to blight in the cotton fields, the supply reduces which causes supply curve to the left both of these leads to increases the equilibrium price as now demand is more than supply while we cannot explain the effect on equilibrium quantity because the increase in price leads to producers increase the supply ( due to law of supply) but the blight in the cotton fields leads to reduce the supply so the effect on quantity is not measurable as we don't know which effect is more dominant.

2. Ans - C) will be lower

Explanation:

price ceiling means the maximum price that can be charged from consumers, this is usually imposed in those markets where producers are charging very high prices or in the market of necessity goods so that price will be lower.