Suppose that one knows two facts: the market for automobile tires experiences chronic shortages and the government sets the price of automobile tires.One can infer that the
A) government has established a price ceiling for tires.
B) quantity of tires supplied exceeds the quantity of tires demanded.
C) government has established a price floor for tires.
D) demand for tires exceeds the supply of tires.
E) government is trying to protect the incomes of tire manufacturers.

Question

Quizplus · Accepted Answer

Chronic shortages in the market indicate that demand exceeds supply, and government price-setting suggests that there is a desire to keep prices from rising too high. Together, these two facts suggest that the government has established a price ceiling, or a maximum price that tire sellers are allowed to charge. This would mean that the quantity of tires demanded is greater than the quantity of tires supplied at the government-mandated price.

Suppose That One Knows Two Facts: the Market for Automobile