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:

Incremental After-Tax Net Cash Flows

The additional cash flows a business expects to generate after accounting for taxes, resulting from a new project or investment.

Depreciation

The systematic allocation of the cost of a tangible asset over its useful life, reflecting the decrease in the asset's value over time.

Marginal Tax Rate

The rate at which the last dollar of income is taxed, indicating the percentage of tax applied to your income for each tax bracket in which you qualify.

Net Investment

The total amount spent on acquiring, maintaining, and improving fixed assets, minus depreciation.