The Shortages Associated with a Binding Price Ceiling Will Be

question 12

Multiple Choice

The shortages associated with a binding price ceiling will be the smallest when

• A)both supply and demand are highly elastic.
• B)both supply and demand are highly inelastic.
• C)supply is highly elastic and demand is highly inelastic.
• D)supply is highly inelastic and demand is highly elastic.
• E)none of the above-the size of the shortage has nothing to do with demand and supply elasticities.

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Definitions:

EOQ Problem

Economic Order Quantity (EOQ) refers to the ideal order quantity a company should purchase to minimize inventory costs including holding, shortage, and order costs.

Lot Size

The quantity of items that are processed, produced, or ordered as a batch.

Cycle Counting

An inventory auditing process where a small subset of inventory is counted on a specific day without having to count the entire inventory.

Annual Physical Inventory

An Annual Physical Inventory is the yearly process of counting all physical inventory to verify records and ensure accuracy in stock level reporting.