2012 Multiple Choice Government Intervention (Price floors, ceilings, indirect tax)
Government Intervention cheat sheet here.
Answer - (B) A shortage of 6 billion gallons
Understand, that the biggest problems with these problems is knowing a ceiling from a floor.
say it,,,,,
Floors are high
Ceilings are low
say it again,,,,
Floors are high
Ceilings are low
You might be tempted to say that the shortage is 4 billion gallons but understand that at the new (government controlled) price the Qd increases to 12b.
12b(Qd) - 6b(Qs) = 6b actually supplied
Answer - (D) Decrease Decrease
Answer - (B) create a shortage of flashlights
If demand increases but supply does not, then shortages occur.
Producers will only supply more of a good if the price of the good increases
The NET price is the price received with the taxes taken out
(amount the seller gets to put in his pocket)
18) Answer (D)
19) Answer (D)
