All categories

3 years ago

Why is a price floor set above an equilibrium price tends to cause persistent imbalances in the market?

Business

1 answer:

kotykmax [81]3 years ago

5 0

Answer:

A price floor set above the equilibrium price will result in a surplus of supply.

Explanation.

An equilibrium price refers to the price at which demand for a service or product is equivalent to the quantity of the product or service supplied in the market.

Setting a price floor above the equilibrium price essentially means that the set prices will be higher than what demand is willing to pay for the product or service. Demand will therefore purchase fewer quantity of the product offered by supply at the prevailing price than they would have at equilibrium price.

Since the price floor will raise the product price to considerably higher than the equilibrium price, supply will be willing to provide higher volumes of the product at the prevailing price than at equilibrium price.

This will lead to a mismatch in the market between supply and demand resulting into a surplus.

You might be interested in

What term refers to the knowledge, education, training, skills, and expertise of a firm's workers?

makkiz [27]

<span>Human capital is the term that refers to the knowledge, education, training, skills, and expertise of a firm's workers.
</span>Gary Becker, an economist from the University of Chicago has popularized this term. <span> The human capital includes assets of individuals that can be used to create economic value for the individuals, their employers, or their community: </span>

7 0

3 years ago

Suppose the exchange rate is 90 yen per U.S. dollar and the United States wants to keep the exchange rate at a target rate of 90

ikadub [295]

Answer:

Option A, buys dollars to raise the exchange rate, is the right answer.

Explanation:

Option A is correct because when the Fed will buy the dollars then only the demand for dollars will shift rightwards. Consequently, the dollar price or exchange rate will go up. Therefore, the Fed will buy the dollars to increase the exchange rate. In another case, if the Fed wants to decrease the exchange rate then it will sell the dollars, and selling of dollars will shift the supply rightwards. Thus, the exchange rate will fall.

6 0

3 years ago

If net sales for the current year were $612,000, the firm's days' sales uncollected for the year is: (Use 365 days a year.)

Aneli [31]

Answer:

42 days.

Explanation

Note: The full question is attached as picture below

Account receivable turnover ratio = $612,000 / $70,422

Account receivable turnover ratio = 8.69

Account collection period = 365 / 8.69

Account collection period = 42.00230.

Thus, the firm’s sales uncollected for year is 42 days.

7 0

2 years ago

1. You have a portfolio that is invested 21% in Stock A, 34% in Stock B, and 45% in Stock C. The betas of the stocks are .66, 1.

MrMuchimi

Answer:

Portfolio Beta = 1.225 rounded off to 1.23

Option e is the correct answer.

r = 0.13338 or 13.338% rounded off to 13.34%

Explanation:

The portfolio beta is a function of the weighted average of the individual stocks' betas that form up the portfolio. To calculate the beta of a portfolio, we use the following formula,

Portfolio Beta = wA * Beta of A + wB * Beta of B + ... + wN * Beta of N

Where,

w is the weight of each stock

Portfolio Beta = 0.21 * 0.66 + 0.34 * 1.21 + 0.45 * 1.5

Portfolio Beta = 1.225 rounded off to 1.23

Using the CAPM, we can calculate the required rate of return on a stock. This is the minimum return required by the investors to invest in a stock based on its systematic risk, the market's risk premium and the risk free rate.

The formula for required rate of return under CAPM is,

r = rRF + Beta * (rM - rRF)

Where,

rRF is the risk free rate

rM is the market return

r = 0.037 + 1.22 * (0.116 - 0.037)

r = 0.13338 or 13.338% rounded off to 13.34%

3 0

3 years ago

Smith Company reported pretax book income of $400,000. Included in the computation were favorable temporary differences of $50,0

Hoochie [10]

Answer:

$10,200

Explanation:

The computation of the deferred income tax expense or benefit is shown below:

Favorable temporary difference = $50,000

Less: Unfavorable temporary difference -$20,000

Net favorable temporary difference $30,000

We assume the tax rate is of 34%

So, the deferred tax expense is

= $30,000 × 34%

= $10,200

By finding out the net favorable temporary difference and then multiplied with the tax rate we can get the deferred tax expense and the same is shown above

3 0

3 years ago