Exhibit 4-3 -Refer to Exhibit 4-3.Which of the following is true? A)If price P₁ is set as a price ceiling it will have an effect on the market for good X. B)If price P₁ is set as a price floor it will have an effect on the market for good X. C)Price P₁ is the equilibrium price for good X. D)If price P₁ is set as a price floor,then it is the highest price that can legally be charged in the market for good X.

Question

Quizplus · Accepted Answer

Setting price P₁ as a price ceiling would limit the price that can be charged for good X and would have an effect on the market. This is because the price ceiling is below the equilibrium price, causing a shortage of the good as demand exceeds supply at the artificially low price. However, if P₁ is set as a price floor, it would have no effect on the market as the price floor is above the equilibrium price and would not affect the quantity demanded or supplied. Therefore, option A is correct. Option B is incorrect because setting the price as a price floor would not have any effect. Option C is incorrect as the equilibrium price is at the intersection of the demand and supply curves. Option D is incorrect as a price floor is the lowest price that can legally be charged.

Exhibit 4-3 -Refer to Exhibit 4-3.Which of the Following Is True