Suppose the market supply is initially at S1 and a price ceiling is set at 8. If supply shifts from S1 to S2, then
A. The price ceiling will no longer bind.
B. The market will not reach equilibrium.
C. The size of the shortage will increase.
D. The price ceiling will prevent output from changing.
Answer: A
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Any policy change that results in a Pareto-superior allocation
A) will increase welfare under certain conditions. B) must increase welfare. C) will leave welfare unchanged. D) will have an unpredictable effect on welfare.
To fix the foreign currency price of domestic currency below the free market equilibrium rate, a government must:
a. sell both its own currency and foreign exchange. b. buy its own currency and sell foreign exchange. c. buy both its own currency and foreign exchange. d. sell its own currency and buy foreign exchange. e. revalue its own currency.