ECONOMICS
PRICE CEILINGS AND FLOORS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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A rise in input costs happens
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If Government pays subsidies for a good.
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If producers expect the price to fall in the future.
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If government regulates a good.
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Detailed explanation-1: -When the government gives a subsidy on the production of a good, marginal and average costs of production tend to fall. Accordingly, producers will supply more at the same price or supply the same quantity at the lower price.
Detailed explanation-2: -A change in the number of sellers in an industry changes the quantity available at each price and thus changes supply. An increase in the number of sellers supplying a good or service shifts the supply curve to the right; a reduction in the number of sellers shifts the supply curve to the left.
Detailed explanation-3: -A positive change in supply when demand is constant shifts the supply curve to the right, which results in an intersection that yields lower prices and higher quantity. A negative change in supply, on the other hand, shifts the curve to the left, causing prices to rise and the quantity to decrease.
Detailed explanation-4: -A subsidy will shift the supply curve to the right and therefore lower the equilibrium price in a market. The aim of the subsidy is to encourage production of the good and it has the effect of shifting the supply curve to the right (shifting it vertically downwards by the amount of the subsidy).
Detailed explanation-5: -A technological improvement that reduces costs of production will shift supply to the right, causing a greater quantity to be produced at any given price.