Refer to Figure 4-13 which shows the market for watermelons. Suppose the government imposes a price floor of Pw. How will the price floor affect the quantity supplied, quantity demanded, and quantity exchanged?
What will be an ideal response?
The price floor will have no effect on the market outcome. An effective price floor must lie above the free-market equilibrium. Thus, in this case the market outcome will be determined by forces of demand and supply.
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The main point of the second theorem of welfare economics is that:
A) efficiency is more important than equity. B) efficiency may be achieved, but equity is not a feasible goal. C) any attempt to achieve an equitable outcome must occur off the contract curve. D) any equitable outcome can be achieved by reallocating the resources among the members of a society.
Borrowing to finance the increases in government expenditures
A) reduces current private investment expenditures. B) increases interest rates. C) reduces growth in the nation's private capital stock. D) all of the above.