Studying for Econ final

PurdueRy

Lifer
Nov 12, 2004
13,837
4
0
20. Inefficiency can be the result of _________________ when an effective _________________ is in place.

a) overproduction; price ceiling
b) underproduction; price floor
c) overproduction; price floor
d) overproduction; tax

I am going to leave out the correct answer for now so I don't get "It's obvious" answers. I am trying to understand the concept behind the question and not just memorize the answer. Any insight into this topic is appreciated.

(No this is not homework or anything, I am actually trying to understand their answer)
 

MrBond

Diamond Member
Feb 5, 2000
9,911
0
76
Price ceilings cause shortages because there's not enough suppy at that price. This causes underproduction, since factories aren't producing something at their maxium efficency (so A can't be right)

Price floors cause a surplus since factories produce more (overproduction) to sell at that price - so B can't be right. I don't think D is correct at all.

So, a price floor would cause a factory to be overproductive, which is less efficent. I'm going with C as the correct answer.

Keep in mind it's been a while since I took econ and I always get price ceiling/floor mixed up. I had to check Wikipedia
 

ChiBOY83

Senior member
Dec 28, 2004
517
0
0
I'm guna say D

depending on what the purpose of the tax is, it typically reduces demand... thus overproduction ... BLAH

haven't taken econ in 3 years...so take it for waht its worth
 

DaWhim

Lifer
Feb 3, 2003
12,985
1
81
microeco

answer is C.

draw the regular supply and demand graph. notice that when there is a price floor in place, demand will be lower than the equilibrium. so inefficiency will be overproduction.
 

speg

Diamond Member
Apr 30, 2000
3,681
3
76
www.speg.com
I just had my Econ 101 final on Saturday so you'd think I would know...

I guess A!

Lots of stuff but can't sell it above the ceiling makes it inefficient?

I hope I passed that final
 

PurdueRy

Lifer
Nov 12, 2004
13,837
4
0
Originally posted by: DaWhim
microeco

answer is C.

draw the regular supply and demand graph. notice that when there is a price floor in place, demand will be lower than the equilibrium. so inefficiency will be overproduction.


Originally posted by: MrBond
Price ceilings cause shortages because there's not enough suppy at that price. This causes underproduction, since factories aren't producing something at their maxium efficency (so A can't be right)

Price floors cause a surplus since factories produce more (overproduction) to sell at that price - so B can't be right. I don't think D is correct at all.

So, a price floor would cause a factory to be overproductive, which is less efficent. I'm going with C as the correct answer.

Keep in mind it's been a while since I took econ and I always get price ceiling/floor mixed up. I had to check Wikipedia


Thanks both of you, that is the correct answer and your explanations make it much clearer, thanks for the help, I really appreciate it.
 

PurdueRy

Lifer
Nov 12, 2004
13,837
4
0
Originally posted by: speg
I just had my Econ 101 final on Saturday so you'd think I would know...

I guess A!

Lots of stuff but can't sell it above the ceiling makes it inefficient?

I hope I passed that final


not looking good so far

jk
 

JS80

Lifer
Oct 24, 2005
26,271
7
81
Originally posted by: MrBond
Price ceilings cause shortages because there's not enough suppy at that price. This causes underproduction, since factories aren't producing something at their maxium efficency (so A can't be right)

Price floors cause a surplus since factories produce more (overproduction) to sell at that price - so B can't be right. I don't think D is correct at all.

So, a price floor would cause a factory to be overproductive, which is less efficent. I'm going with C as the correct answer.

Keep in mind it's been a while since I took econ and I always get price ceiling/floor mixed up. I had to check Wikipedia

C is the answer
 

speg

Diamond Member
Apr 30, 2000
3,681
3
76
www.speg.com
Originally posted by: MrBond
Price ceilings cause shortages because there's not enough suppy at that price. This causes underproduction, since factories aren't producing something at their maxium efficency (so A can't be right)

Price floors cause a surplus since factories produce more (overproduction) to sell at that price - so B can't be right. I don't think D is correct at all.

So, a price floor would cause a factory to be overproductive, which is less efficent. I'm going with C as the correct answer.

Keep in mind it's been a while since I took econ and I always get price ceiling/floor mixed up. I had to check Wikipedia


Did you mix up floor/ceiling in those paragraphs?

I see why C is correct, but I don't see why A is incorrect

If there's a ceiling, there's already going to be a surplus, and if they're overproducing on top of that. That would mean more surples, which means even more inefficeient?
 

dornick

Senior member
Jan 30, 2005
751
0
0
In a price ceiling, suppliers are underproducing because demand is much higher. There isnt a surplus

goddamnit, I swore never to think about econ again since that final.
 

Wuzup101

Platinum Member
Feb 20, 2002
2,334
37
91
From my basic econ knowledge, the answer is C. I didn't bother looking it up but did draw out some simple S/D charts.

An effective price floor (one that has the price set above the equilibrium price) will lead to overproduction and thus inefficiency. If you draw out the S/D graph, and then draw a horizontal line ABOVE the equilibrium point and use this as your price floor, you will notice that at this minimum price, the supply is greater than the demand (inefficiency). If the price floor is below the equilibrium price, than the market will continue to use the equilibrium (hence a price floor doesn't cause underproduction - why B isn't correct).

On the other side of the coin, a effective price ceiling, represented by a horizontal line at a price under the equilibrium, will cause increased demand and decreased supply. Thus a price ceiling causes a shortage/underproduction , and thus inefficiency. Also, know that a price ceiling that establishes a price over the equilibrium price doesn't change the equilibrium. S/D stay the same in this case, thus a price ceiling doesn't cause overproduction (why A isn't correct)

As far as D is concerned, I believe taxes end up shifting the supply curve upwards. Depending on the nature of the tax, and the actual physical supply curves, the tax is paid by both consumers and producers in various ratios. Taxes establish an equilibrium price that is above the normal (tax-free) equilibrium price, and a quantity that is below the normal (tax-free) equilibrium quantity. As far as efficiency/inefficiency I seem to remember different ways of how taxes work, but it escapes me at the moment. As of now, I'm just thinking about over/under production causing inefficiency, as taxation sets a new equilibrium you don't have over/under production ance hence still an efficient situation... or something like that

Wow... common sense makes my head hurt... luckly i'm done with my engineering finals Good luck to you, I'll drink a beer for ya!
 

DaWhim

Lifer
Feb 3, 2003
12,985
1
81
Originally posted by: tfcmasta97
A)

i finished my econ final (first year) yesterday morning

haha...looks like you are not doing that good. I had mine yesterday morning too.
 

tfcmasta97

Platinum Member
Feb 7, 2004
2,003
0
0
lol i see my error.

hey leave me alone, my body has literally been running off of only energy drinks the past week.
 

speg

Diamond Member
Apr 30, 2000
3,681
3
76
www.speg.com
Originally posted by: PurdueRy
Originally posted by: speg
I just had my Econ 101 final on Saturday so you'd think I would know...

I guess A!

Lots of stuff but can't sell it above the ceiling makes it inefficient?

I hope I passed that final


not looking good so far

jk

Just got my mark for the class back - 88!! Booya

Went into the exam with an 81, so I either smoked it (not likely) or rode the curve up.
 
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