Which of the following would increase quantity supplied, increase quantity demanded, and decrease the price that consumers pay?

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BlackTom AI · Accepted Answer

Question restatement: Which of the following would increase quantity supplied, increase quantity demanded, and decrease the price that consumers pay?

Option 1: The imposition of a binding price floor
- A binding price floor sets a minimum price above the equilibrium, which typically increases the price consumers pay, decreases quantity demanded, and increases quantity supplied if producers respond. It does not simultaneously increase both quantities demanded and supplied while lowering price. This option is inconsistent with the target combination.

Option 2: The removal of a binding price floor
- Removing a binding price floor eliminates the artificial price support that kept the market price high. This generally lowers the price paid by consumers and moves the market toward equilibrium, which tends to increase quantity demanded. Quantity supplied may also respond as the market rebalances; while the exact movement depends on the new equilibrium, this option is the one that most plausibly aligns with decreasing price and increasing quantity demanded, and it can be consistent with an eventual increase in quantity supplied as producers adjust to the new price. This option best matches the combined effects described in the question.

Option 3: The passage of a tax levied on producers
- A tax on producers effectively increases production costs, reducing quantity supplied at any given price and typically increasing prices for consumers. This option would not increase quantity supplied or reduce the price paid by consumers; it would do the opposite for supply and price.

Option 4: The repeal of a tax levied on producers
- Repealing a tax lowers production costs, which generally raises quantity supplied and can lower the market price, but it does not inherently guarantee an increase in quantity demanded in the same way as a price drop induced by removing a price floor. While supply might rise, the effect on quantity demanded depends on the resulting price change and other demand-side factors; this option does not clearly fulfill all three parts of the prompt.

Summary: Each option presents a distinct policy or change affecting supply, demand, and price. The removal of a binding price floor uniquely facilitates movement toward market equilibrium by lowering the price and supporting adjustments in both quantities demanded and supplied, making it the option that best aligns with all three outcomes described in the question. Nevertheless, in real-world scenarios, the exact responses depend on the elasticities and the specific market context.

ECON 100 001/002/003/004 Markets and Government Policy

Which of the following would increase quantity supplied, increase quantity demanded, and decrease the price that consumers pay?

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ECON 100 001/002/003/004 Markets and Government Policy

Which of the following would increase quantity supplied, increase quantity demanded, and decrease the price that consumers pay?

View Explanation

Log in for full answers

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