Equilibrium & Price Controls

Question 1

What happens when a non-price determinant(trigger) causes a rise in demand(effect)?

Answer 1

The demand curve will shift right and this results in a rise in equilibrium price and quantity.

Question 2

What happens when a non-price determinant(trigger) causes a fall in demand (effect)?

Answer 2

The demand curve shifts left and the equilibrium price and quantity falls.

Question 3

How does the changing of the price of a product or service affect the demand curve?

Answer 3

The demand curve will move which will affect the quantity demanded.

Question 4

What happens when a non-price determinant causes a rise in supply?

Answer 4

The supply curve shifts right and this results in a fall in equilibrium price and a rise in equilibrium quantity.

Question 5

What happens when a non-price determinant causes a fall in supply?

Answer 5

The supply curve shifts left and this results in a rise in equilibrium price and a fall in equilibrium quantity.

Question 6

What happens when the government finds the market equilibrium price unacceptable and intervenes in the market? (Price ceiling)

Answer 6

If the government is concerned that consumers are paying too high a price, it may impose a price ceiling to keep the price low.

Question 7

What happens when the government finds the market equilibrium price unacceptable and intervenes in the market? (Price floor)

Answer 7

If the government is concerned that producers are getting too low a price, it may impose a price floor to keep the price high.

Question 8

What traits and impacts does a price ceiling have?

Answer 8

• legal maximum price
• An effective price ceiling is one that is set below the market equilibrium price.
• An effective price ceiling will result in a shortage
• As price is not allowed to increase, there is a need to ration the limited amount of the product supplied.

Question 9

What traits and impacts does a price floor have?

Answer 9

• a legal minimum price
• An effective price floor is one that is set above the market equilibrium price.
• An effective price floor will result in a surplus
• In the case of price floor on agricultural goods, the government may buy the surplus and add to its stockpile of the goods.

Question 10

What is a price ceiling?

Answer 10

It is the legal maximum price.

Question 11

What is a price floor?

Answer 11

It is the legal minimum price.