Question

In the aftermath of a hurricane, an entrepreneur buys generators at $530 each from a store in an area unaffected by the hurricane. He then sells them in the hardest-hit area for $900 apiece. What does the purchase of these generators by hurricane victims, at a 70% markup, say about the equilibrium price of generators following a natural disaster? O Any price ceiling imposed on generators in the affected area would create a surplus. O A shift in the demand curve will create a new equilibrium point. O Those who voluntarily purchase the generators believe them to be worth the marked-up price. O The effect of price ceilings is to make behavior like the entrepreneur’s illegal.

Answer 1

Answer:

A shift in the demand curve will create a new equilibrium point.

Those who voluntarily purchase the generators believe them to be worth the marked-up price.

The effect of price ceilings is to make behavior like the entrepreneur’s illegal.

Explanation:

As after hurricane there is a necessity to buy the generators, accordingly the demand for the generators increase and so does the price, therefore, there is a new equilibrium.

And as there is need, people voluntarily buying it would definitely feel it worth to spend and pay such exaggerated price.

If there will be price ceilings then the entrepreneur will try to sell the generators at high prices illegally because he need to get the margin.

Although there will be no surplus even in case of price ceilings as it is a need people will buy and the stock will be sold at last.