Question

Which of these is not a demand shifter? The price of a substitute good.
a. True
b. False

Answer 1

The price of a substitute good is a demand shifter, so the statement is false. A price ceiling and a price floor do not shift demand or supply; they set maximum and minimum prices, potentially causing market inefficiencies like shortages and surpluses.

Step-by-step explanation:

The question at hand is asking which market situations do not shift the demand curve. To answer the student's initial question: The price of a substitute good is indeed a demand shifter. Therefore, the correct answer to whether the statement 'The price of a substitute good is not a demand shifter' is true would be b. False.

Now, looking at the provided reference questions:

1. A price ceiling does not shift demand or supply. Instead, it sets a maximum price that can be charged for a good or service, which is intended to benefit consumers. However, it can result in shortages if set below the equilibrium price.
2. Similarly, a price floor does not shift demand or supply; it sets a minimum price above the equilibrium price, which can lead to surpluses.

Both price ceilings and price floors are forms of government interventions in the market and can lead to inefficiencies like shortages and surpluses, respectively, but they do not cause the supply and demand curves themselves to shift.