CFA CFA Level 1 Economics – Schweser Qbank

Economics – Schweser Qbank

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    • Snippy
      Participant
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      I came across this question in the Qbank.

      Can anyone tell me what is the correct answer and why?

      P.S. Still hate economics :s

    • Sophie Macon
      Keymaster
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      @sidmenon, I would have thought it’s A, for a price ceiling to be effective.

    • Sophie Macon
      Keymaster
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      First, a price ceiling can be any price, whether above or below the equilibrium price.

      For a price ceiling to be in effect (enforced), it has to be below the equilibrium market price. It may help to think of say sugar pricing, for example. Say 1kg sugar is $5, but the government regulates it and place a price ceiling of $2. Hence the market price is $2. Imagine if the price ceiling is $7, then since the equilibrium price is below that anyway, the price ceiling is not in effect.

      Rattling on in excess of your question, you can see the impact of a price ceiling in effect using this chart. Due to the lower price, there would be excess demand (shown by difference between demand and supply curve at the lower price ceiling), but producers can only supply much less at that price (because it’s not profitable or possible to do so). Due to this intervention in a free market, there is a loss to society in terms of economic inefficiency and unmet demand.

    • vincentt
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      Yup, agree with @sophie , if the ceiling (price ceiling) of your flat is below you (equilibrium), you would be affected (effective). Likewise, if it’s above you (equilibrium), it shouldn’t matter.

    • lulu123
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      so wait, the answer is A?? @sidmenon @sophie

      otherwise, if it’s B it makes no sense because: if the price ceiling is regulated above equilibrium, the markets will reach equilibrium and will not move up anymore
      Thus, to work, it can only make sense to set a ceiling below equilibrium?

    • vincentt
      Participant
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      @lulu123 A if not mistaken

    • lulu123
      Participant
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      @sidmenon

      doesnt the Q Bank give you a short explanation after you submit your answer? as in, won’t it explain why the correct answer is indeed correct?

    • Sarah
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      @lulu123 it does but it doesn’t always explain why the others are wrong and the explanations are pretty short. If you are having troubles with a particular concept it isn’t enough to clarify all the details.

    • Snippy
      Participant
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      Thanks @Sophie and @vincentt! Understood perfectly 🙂

    • Sophie Macon
      Keymaster
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      No probs @sidmenon! Keep em’ coming, I’m getting rusty :))

    • Snippy
      Participant
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      @lulu123 Yes, A is the answer. And yeah, they do give the correct answer with the explanation but like @Diya said, it wasn’t enough and i didn’t understand anything from it for this question, which is why i put it up here 🙂

    • lulu123
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      @diya @sidmenon

      true that for the incomplete explanations!

    • vincentt
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      @sidmenon no prob! Just trying to help where possible!

    • hairyfairy
      Participant
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      Good to know – thanks for raising the q @sidmenon!

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