Suppose the Demand for Eggs Is Inelastic and That the Market-Clearing

question 41

Multiple Choice

Suppose the demand for eggs is inelastic and that the market-clearing price is $1.50 per dozen.Now suppose the government imposes a minimum price of $2.00 per dozen.Why might the government implement such a policy?

• A)to make consumers better off
• B)to increase the incomes of egg farmers
• C)to increase excess demand in the egg market
• D)to reduce excess supply in the egg market
• E)to decrease tax revenues from egg farmers

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Definitions:

Recessionary Gaps

Situations where the real GDP is lower than the potential GDP due to insufficient aggregate demand, leading to unemployment and underused resources.

Equilibrium GDP

The point at which the aggregate supply and aggregate demand within an economy are equal, indicating a state of economic balance.

Recessionary Gap

The difference between the actual output of an economy and its potential output, occurring during periods of economic downturn.

Equilibrium GDP

The level of Gross Domestic Product (GDP) at which aggregate supply equals aggregate demand.