A depository institution receives deposits from lenders and makes ...

[cagreen833]

A depository institution receives deposits from lenders and makes loans to borrowers.
 
  Indicate whether the statement is true or false

Question 2

What occurs if a price floor is set above the equilibrium price? What occurs if a price ceiling is set below the equilibrium price?
 
  What will be an ideal response?

[britb2u]

Answer to Question 1

TRUE

Answer to Question 2

A price floor set above the equilibrium price will result in a surplus of the product. Because the price floor is above the equilibrium price, the price rises above the equilibrium value. With the higher price, the quantity supplied increases and the quantity demanded decreases. At the floor price, the quantity supplied exceeds the quantity demanded and hence a surplus is the outcome.
A price ceiling set below the equilibrium price also affects the market. The price ceiling is below the equilibrium price, so the price falls, from what it was at its equilibrium, to the ceiling amount. The fall in price increases the quantity demanded and decreases the quantity supplied. As a result, at the price equal to the ceiling floor, the quantity demanded exceeds the quantity supplied and hence there is a shortage.