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

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Question restatement: Identify which policy/action would raise quantity supplied, lower quantity demanded, and raise the price paid by consumers.
Option 1: The imposition of a binding price floor. This directly sets a minimum price above the market-clearing level, which typically causes producers to increase quantity supplied because the price is higher, while reducing quantity demanded because consumers buy less at the higher price; the market price ends up above equilibrium, so consumers pay more. This matches the described effects.
Option 2: The removal of a binding price floor. Removing a binding price floor would let the market return to equilibrium without the constraint, likely lowering the price toward the former equilibrium, decreasing quantity supplied, and increasing quantity demanded. This does not produce the combination of higher price, higher supply, and lower demand.
Option 3: The passage of a tax levied on producers. A tax on producers shifts supply leftward (decreases supply) and raises the price paid by consumers while reducing quantity traded. This would not increase quantity supplied; in fact, it reduces it, and the price effect is more nuanced but typically does not result in a straightforward increase in price borne by consumers alone as described.
Option 4: The repeal of a tax levied on producers. Repealing a tax shifts supply rightward (increases supply), lowers the market price, and increases quantity demanded. This would decrease price paid by consumers and increase quantity demanded, opposite to the effect described.
In summary, only the binding price floor would generate the combination: higher quantity supplied, lower quantity demanded, and a higher price paid by consumers. The other options fail to produce that specific set of impacts due to how price controls and taxes interact with supply and demand dynamics.

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

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

View Explanation

Log in for full answers

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