To the extent that a governmental price control succeeds in affecting price, it can be expected to lead to a corresponding:

a. decrease in the volume of sales whether the price is forced up or down.

b. reduction in the volume of sales only if the price is forced down.

c. increase in the volume of sales whether the price is forced up or down.

d. reduction in the volume of sales if the price is forced down and an increase in the volume of sales if the price is forced up.

Question

Business

Maurice Erickson

22 January, 12:09

To the extent that a governmental price control succeeds in affecting price, it can be expected to lead to a corresponding:

a. decrease in the volume of sales whether the price is forced up or down.

b. reduction in the volume of sales only if the price is forced down.

c. increase in the volume of sales whether the price is forced up or down.

d. reduction in the volume of sales if the price is forced down and an increase in the volume of sales if the price is forced up.

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Answers (1)

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Ty Palmer · Answer 1

d. reduction in the volume of sales if the price is forced down and an increase in the volume of sales if the price is forced up.

Explanation:

When government implements price controls it can either be a price ceiling (reduced price) or a price floor (increased price).

A price ceiling gives a maximum price level above which sellers cannot sell their product. This will cause a reduction in amount supplied because the sale of products at lower price will not be attractive. Demand will be in excess for the scarce products.

If a price floor is imposed there is a minimum price that sellers are not allowed to sell below. Sellers are free to sell above this price, supply will increase but there will be less demand for the product at higher price. This causes excess of supply.