If a Market Is Initially Operating Competitively and Then the Government

question 12

Multiple Choice

If a market is initially operating competitively and then the government imposes a price floor above the equilibrium price,

• A)there will be more resources will be devoted to the production of this product
• B)quantity demanded will rise
• C)producer surplus will fall in the short run
• D)imposition of the floor is probably a positive-sum game
• E)consumer surplus will fall

---

Definitions:

Cash Payback Period

The time it takes for an investment to generate cash flow sufficient to recover its initial cost.

Net Income

The total profit of a company after all expenses, including taxes and operating expenses, have been subtracted from total revenue.

Net Present Value

A method used in capital budgeting to assess the profitability of an investment by calculating the present value of expected cash flows minus the initial investment cost.

Average Rate of Return

A metric used to evaluate the profitability of an investment, calculated by dividing the average annual profit by the initial investment cost.