Figure 2.2.2
-Refer to Figure 2.2.2 above. If the price of $2.25 is an artificial price imposed by the government, and the government is expected to remove it, what will happen in this market?
A) There will a tendency for the price to be higher than the imposed price.
B) There will a tendency for the new price to be lower than the imposed price.
C) The new price would not be expected to by any different than the already imposed price.
D) The new price will tend to fluctuate above and below the equilibrium price of $2.00.

Question

Figure 2.2.2
-Refer to Figure 2.2.2 above. If the price of $2.25 is an artificial price imposed by the government, and the government is expected to remove it, what will happen in this market?
A) There will a tendency for the price to be higher than the imposed price. 
B) There will a tendency for the new price to be lower than the imposed price. 
C) The new price would not be expected to by any different than the already imposed price. 
D) The new price will tend to fluctuate above and below the equilibrium price of $2.00.

Quizplus · Accepted Answer

When a government-imposed price, such as a price floor or ceiling, is removed, the market tends to move towards equilibrium. If the imposed price of $2.25 is above the equilibrium price (which is suggested to be $2.00), removing the artificial price would lead to a decrease towards the equilibrium, making option A correct as it implies the artificial price is higher than the natural market equilibrium.

Figure 2.2.2 -Refer to Figure 2.2.2 Above. If the Price of $2.25