Exhibit 6-18 on a Normal Day, Emily Mapai's Demand

question 91

Multiple Choice

Exhibit 6-18 On a normal day, Emily Mapai's demand curve for a cup of hot chocolate is initially shown as D in Exhibit 6-18.On a day when the high temperature does not get above zero degrees, her demand curve increases to D'.At a price P for a cup of hot chocolate, Emily's consumer surplus on a freezing day

• A)cannot be determined without calculating an exact marginal valuation
• B)increases a great deal over her consumer surplus on a normal day
• C)will vary depending on whether hot chocolate is a normal or an inferior good
• D)increases only if her demand curve is unit-elastic
• E)decreases a great deal over her consumer surplus on a normal day

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Definitions:

Binding Price Ceiling

A government-imposed limit on the price of a commodity or service that is set below the market equilibrium price, causing a shortage.

Binding Price Floor

A government-imposed price control set above the equilibrium price, causing a surplus by forcing the price to be higher than what the market would naturally set.

Deadweight Loss

A loss of economic efficiency that can occur when the equilibrium for a good or service is not achieved or is not achievable, typically resulting from taxes or price controls.

Rent Ceiling

A form of price control where a maximum limit is placed on the rent that can be charged for housing.