Question

In a crossing network that uses derivative pricing rules:

a. The price is determined based on supply and demand.
b. There's the possibility of price manipulation.
c. Traders submit quantities and prices at which they want to trade.
d. None of the above.

Answer 1

In a crossing network, none of the typical market forces apply to price determination, making the answer 'None of the above.' A price floor does not shift the demand or supply but creates a surplus if set above the equilibrium price. Using the demand and supply framework, setting a price floor influences the price level and quantities but doesn't move the curves themselves.

Step-by-step explanation:

the correct answer is d. In a crossing network that uses derivative pricing rules, the correct answer to the student's question is d. None of the above. A crossing network is an alternative trading system designed to facilitate the matching of buy and sell orders at certain times during the trading day without reference to the current market price. Therefore, options a, b, and c do not typically apply to how prices are determined in a crossing network. As for price floors. neither.

A price floor is typically set by the government and represents a minimum price for a commodity. It does not directly shift the demand or supply curves, but rather can create a surplus if it is set above the equilibrium price since it provides an incentive for producers to supply more and a disincentive for consumers to purchase less. If the price floor is set slightly above the equilibrium price, the effects would be less pronounced but still lead to a surplus.