In the aftermath of a hurricane, an entrepreneur buys generators at $530 each from a store in an area unaffected by the hurricane. He then sells them in the hardest-hit area for $900 apiece. What does the purchase of these generators by hurricane victims, at a 70% markup, say about the equilibrium price of generators following a natural disaster?

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26-02-2020
Business

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In the aftermath of a hurricane, an entrepreneur buys generators at $530 each from a store in an area unaffected by the hurricane. He then sells them in the hardest-hit area for $900 apiece. What does the purchase of these generators by hurricane victims, at a 70% markup, say about the equilibrium price of generators following a natural disaster?

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ewomazinoade ewomazinoade · Answer 1 · 2020-02-27T05:31:19+01:00

Answer:

A shift in the demand curve will create a new equilibrium point.

Those who voluntarily purchase the generators believe them to be worth the marked-up price.

The effect of price ceilings is to make behavior like the entrepreneur’s illegal.

Explanation:

The options to this question wasn't provided. Here are the options:

Any price ceiling imposed on generators in the affected area would create a surplus. O A shift in the demand curve will create a new equilibrium point. O Those who voluntarily purchase the generators believe them to be worth the marked-up price. O The effect of price ceilings is to make behavior like the entrepreneur’s illegal.

After the hurricane, the price of generators increased. This could mean that the demand for generators increased. If the demand for generators increased while supply remains unchanged, demand would outstrip supply and prices would rise.

This leads to the conclusion that there is a scarcity in the market and not a surplus.

A price ceiling is when the government or an agency of the government sets the maximum price for a good. If the government sets a price ceiling for generators, it would lead consumers to believe that the price of the generators is too high and that the seller is exploiting them. Thus, the sellers activities are illegal.

People who buy at the market price believe that the generator is worth the price. A rational consumer would only buy a good If his willingness to pay is greater or equal to the price of the product.

I hope my answer helps you