The reduction in the market output resulting from the imposition of a price floor depends on both the price elasticity of demand and the price elasticity of supply.
Answer the following statement true (T) or false (F)
False
Rationale: It only depends on the price elasticity of demand.
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When the price of most goods and services falls in a country, a fixed level of income and wealth will have higher purchasing power. This will increase the consumption and the aggregate quantity demanded. This situation represents the _____
a. interest rate effect b. exchange rate effect c. wealth effect d. accelerator effect
Price ceilings and price floors that are binding
a. are desirable because they make markets more efficient and more fair. b. cause surpluses and shortages to persist because price cannot adjust to the market equilibrium price. c. can have the effect of restoring a market to equilibrium. d. are imposed because they can make the poor in the economy better off without causing adverse effects.