Assume a price floor is imposed in the wheat market at the equilibrium price and that a price ceiling is imposed in the gasoline market at the equilibrium price. An increase in supply in both the wheat and gasoline markets will create:
A)surpluses in both the wheat and gasoline markets.
B)shortages in both the wheat and gasoline markets.
C)a surplus in the wheat market and an increase the quantity of gasoline traded.
D)a surplus in the wheat market and a shortage in the gasoline market.

Question

Assume a price floor is imposed in the wheat market at the equilibrium price and that a price ceiling is imposed in the gasoline market at the equilibrium price. An increase in supply in both the wheat and gasoline markets will create:
A)​surpluses in both the wheat and gasoline markets.
B)​shortages in both the wheat and gasoline markets.
C)​a surplus in the wheat market and an increase the quantity of gasoline traded.
D)​a surplus in the wheat market and a shortage in the gasoline market.

Quizplus · Accepted Answer

A price floor set at the equilibrium price will not initially create a surplus in the wheat market, but an increase in supply, with the price unable to fall, will lead to a surplus. A price ceiling at the equilibrium price in the gasoline market will not initially create a shortage, but an increase in supply will allow more gasoline to be traded without creating a shortage, as the price and quantity can adjust to accommodate the increased supply.

Assume a Price Floor Is Imposed in the Wheat Market