Question

which of the following is a predictable effect of an effective price ceilings?

• an increase in the quantity supplied.
• a market surplus.
• an increase in the quantity demanded.
• all of the other answers.

question 8
the price ceiling that the california legislature placed on electricity caused:

• an increase in demand.
• an increase in supply.
• a shortage.
• a surplus.

Explanation:

First Question (About Effective Price Ceiling Effect)

1. Recall the concept of a price ceiling: An effective (binding) price ceiling is set below the equilibrium price.
2. Analyze each option:

• "An increase in the quantity supplied": At a price below equilibrium, suppliers are willing to supply less (quantity supplied decreases), so this is incorrect.
• "A market surplus": A price ceiling below equilibrium causes quantity demanded to exceed quantity supplied (shortage), not surplus, so incorrect.
• "An increase in the quantity demanded": By the law of demand, a lower price (due to price ceiling) leads to a higher quantity demanded, so this is correct.
• "All of the other answers": Since the first two are incorrect, this is also incorrect.

1. A price ceiling on electricity (effective, so below equilibrium price) affects supply and demand:

• "An increase in demand": Price ceiling affects quantity demanded (movement along demand curve), not demand shift, so incorrect.
• "An increase in supply": Lower price reduces quantity supplied (movement along supply curve), not supply shift, so incorrect.
• "A shortage": At price below equilibrium, quantity demanded > quantity supplied, causing a shortage, so correct.
• "A surplus": Surplus occurs when price is above equilibrium, so incorrect.

Answer:

An increase in the quantity demanded.

Second Question (California Electricity Price Ceiling)