Suppose You Live in a Community with No Price Controls

question 50

Multiple Choice

Suppose you live in a community with no price controls.What do you expect to happen if your town borders a community where there is a non-binding price floor on most products?

• A) The products sold will become more plentiful.
• B) The products sold will become less plentiful.
• C) There will be upward pressure on the prices.
• D) There will be downward pressure on the prices.
• E) The price and the quantity sold in the community without a non-binding price floor will be the same as the price and quantity in the community with a non-binding price floor.

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Definitions:

Market Price

The current value at which an asset or service can be bought or sold in a competitive marketplace.

Units

Basic measurements or quantities adopted as standards to express amounts, dimensions, or capacities for various elements or substances in specific contexts.

Marginal Cost

The price rise from the production of an additional unit of a product or service.

Diminishing Returns

A principle stating that as one input in the production process is incrementally increased, there will be a point at which the added output from each additional unit of input will start to decrease.