Exam 6: Government Actions in Markets

In the 1980s, one of the most common sights in the socialist countries, such as the former Soviet Union and North Korea, were long lines for bread, sugar, and other necessities. These countries had price ceilings on these necessities. Some of the socialist nations, such as the former Soviet Union, have moved to a market economy by lifting the price ceilings, while others, such as North Korea, have retained their price ceilings. What prediction do you make about the presence (or absence) of long lines today in the former Soviet Union and North Korea? Explain your answer.

-Suppose the government has declared beer to be an illegal substance and imposes a fine on anyone caught buying a beer. Selling beer, however, remains legal. Using the above figure, in which CBL is the cost of breaking the law, what is the equilibrium price and quantity with this new law in effect?

When a rent ceiling is imposed in a housing market, the opportunity cost of housing equals the

Suppose the equilibrium wage is $10 per hour. A minimum wage is a ________ and affects employment if it is set at ________.

-In the above figure, the price paid by the buyer before the tax is ________ per CD, and the price paid by the buyer after the tax is ________ per CD.

The CBS news correspondent Bill Whitaker discussed the high level of unemployment among teens, especially during the summer months. In 2011, unemployment among the population as a whole was 9.1 percent, but among teens it was close to 24 percent. Many of these teens were hoping to get entry level jobs as small businesses. (Source: CBS news, June 4, 2011) A minimum wage set above the equilibrium wage rate is called

-Suppose the government has declared beer to be an illegal substance and has imposed penalties on any person caught buying a beer. Selling a beer, however, remains legal. Using the above figure, in which CBL is the cost of breaking the law, beer consumption is decreased by

-In the figure above, originally the apartment rental market is in short-run and long-run equilibrium with a rent of $600 per month. Then the government imposes a rent ceiling of $500 per month. Now suppose that demand increases. The increase in demand results in the quantity supplied

Suppose the demand for saline solution is perfectly inelastic for contact lens wearers. If the government imposes a tax on saline solution, what occurs? Be sure to tell what happens to the price paid by the buyers and discuss the incidence of the tax.

When a government fines and/or imprisons persons convicted of using illegal drugs, the government is attempting to decrease the illegal drug trade by shifting the ________ curve for illegal drugs ________.

In a diagram, illustrate the case of a price ceiling that affects the market's price and quantity.

One of the best defenses we have against malaria these days comes from a fern-like weed called wormwood. Fluctuating supply and demand have pushed the plant's price from $155 per kilo one year, to over $1000 the next. There is a push to set a price ceiling for the plant. Which of the following would NOT occur if there was a price ceiling set below the equilibrium price on wormwood?

-The above figure illustrates the labor market for fast food restaurants in a small city in Peru. What would be the effects of a minimum wage imposed at $4 per hour?

Is the minimum wage an example of a price floor or a price ceiling? Why?

The black market price for a legally prohibited good will be the same whether a $1,000 fine is placed on the buyer or the seller.

-In the above figure, if the minimum wage is set at $8 per hour, the level of unemployment is ________ hours per week is

-In the figure above, originally the apartment rental market is in short-run and long-run equilibrium with a rent of $600 per month. Then the government imposes a rent ceiling of $500 per month. The loss of producer surplus

-The above figure shows the apartment rental market in Bigtown. At what rent will there be neither a shortage nor a surplus of apartments?

-The above figure shows the market for neckties after the government has imposed a tax. How much government revenue is generated by the tax?

-In the above figure, a rent ceiling of $500 per month would