Question
The graph shows the price of a good compared to the quantity demanded and the quantity supplied.
A graph titled Price Controls Graph 1 has Quantity on the x-axis and price on the y-axis. Demand has a negative slope and supply has a positive slope. Points are on the demand line and the supply line at the same price. Excess demand is indicated between the 2 points. Both points are below the point of equilibrium.
On this graph, what does the green arrow represent?
an ineffective price floor set above equilibrium causing a surplus.
an effective price floor set below equilibrium causing a shortage.
an ineffective price ceiling set above equilibrium causing a surplus.
an effective price ceiling set below equilibrium causing a shortage.
A graph titled Price Controls Graph 1 has Quantity on the x-axis and price on the y-axis. Demand has a negative slope and supply has a positive slope. Points are on the demand line and the supply line at the same price. Excess demand is indicated between the 2 points. Both points are below the point of equilibrium.
On this graph, what does the green arrow represent?
an ineffective price floor set above equilibrium causing a surplus.
an effective price floor set below equilibrium causing a shortage.
an ineffective price ceiling set above equilibrium causing a surplus.
an effective price ceiling set below equilibrium causing a shortage.
Answers
GPT-4o mini
Based on your description of the graph, the green arrow likely represents "an effective price ceiling set below equilibrium causing a shortage."
Here's the reasoning:
- An effective price ceiling is a maximum price set below the equilibrium price, which prevents the price from rising to its equilibrium level.
- In this case, since you indicate that both the demand and supply points are below the point of equilibrium and there is excess demand indicated, this aligns with the scenario of a price ceiling causing a shortage.
If the price were capped below equilibrium (price ceiling), the demand would exceed the supply, leading to a shortage, which matches your explanation of the points being located below equilibrium.
Here's the reasoning:
- An effective price ceiling is a maximum price set below the equilibrium price, which prevents the price from rising to its equilibrium level.
- In this case, since you indicate that both the demand and supply points are below the point of equilibrium and there is excess demand indicated, this aligns with the scenario of a price ceiling causing a shortage.
If the price were capped below equilibrium (price ceiling), the demand would exceed the supply, leading to a shortage, which matches your explanation of the points being located below equilibrium.