Question

Suppose the government has imposed a price floor on cellular phones. Which of the following events could transform the price floor from one that is binding to one that is not binding?

Answer 1

Question:

Suppose the government has imposed a price ceiling on cellular phones. Which of the following events could transform the price ceiling from one that is binding to one that is not binding? a. Cellular phones become more popular. b. Traditional land line phones become more expensive. C. The components used to produce cellular phones become more expensive. @ A technological advance makes cellular phone production less expensive.

Answer:

.A technological advance makes cellular phone production less expensive.

Explanation:

Government could in consideration of the product's lower production cost, opt to adjust the price ceiling.

What's the rationale behind this?

The decrease in production cost for cellular phones means the industry can afford to produce and sell at lower price(maybe even lower) than the price ceiling. This would mean that businesses in this industry may be charging incredibly high prices compared to cost of production and still not hit price ceiling. Therefore government may need to lower price ceiling to suit current cost of production.