Suppose a Price Ceiling Is Imposed Below the Undistorted Market

question 4

Multiple Choice

Suppose a price ceiling is imposed below the undistorted market equilibrium price.Which of the following is true?

• A)The increase in the real price paid by consumers is larger the more price inelastic consumer demand is.
• B)The increase in the real price paid by consumers is larger the more price inelastic the supply curve is.
• C)The size of the reduction in market output depends only on the price elasticity of supply and not the price elasticity of demand.
• D)Both (a) and (b).
• E)Both (a) and (c).
• F)Both (b) and (c).
• G)All of the above.
• H)None of the above.

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Definitions:

Aggregate Demand

The aggregate need for all products and services across an economy at different pricing points, during a defined timeframe.

Nominal Variables

Economic variables measured in monetary terms without adjustment for inflation, reflecting their value in current prices.

Real Variables

Variables measured in physical units.

Real GDP

Gross Domestic Product adjusted for inflation, providing a more accurate measure of economic performance over time.