Question 1

A shortage results when:

Accepted Answer

A)  a price floor is imposed. 
B)  a price ceiling is imposed. 
C)  there is excess supply without any price controls. 
D)  a price floor is imposed but it is not binding. 
A)  a price floor is imposed. 
B)  a price ceiling is imposed. 
C)  there is excess supply without any price controls. 
D)  a price floor is imposed but it is not binding.

Question 2

We commonly associate ______ with agricultural products.

Accepted Answer

A)  price ceilings 
B)  price floors 
C)  unregulated markets 
D)  rent control 
A)  price ceilings 
B)  price floors 
C)  unregulated markets 
D)  rent control

Question 3

Use the following to answer questions:
Figure: Price Ceilings and Random Allocation  
-(Figure: Price Ceilings and Random Allocation) Refer to the figure. When a controlled price is imposed and the quantity of goods is allocated randomly between the highest-valued uses and lowest-valued uses, loss due to random allocation instead of allocation to the highest-valued use is represented by area:

Accepted Answer

A)  A. 
B)  B. 
C)  C. 
D)  D. 
A)  A. 
B)  B. 
C)  C. 
D)  D.

Question 4

The minimum wage causes unemployment mainly among poor, unskilled workers.

Accepted Answer

A) True 
 B)False

Question 5

When a price ceiling is in effect, goods and services:

Accepted Answer

A)  are still allocated efficiently. 
B)  are not necessarily supplied by their lowest-cost producer. 
C)  do not necessarily flow to their highest-valued use. 
D)  are neither necessarily supplied by their lowest-cost producer nor do they flow to their highest-valued use. 
A)  are still allocated efficiently. 
B)  are not necessarily supplied by their lowest-cost producer. 
C)  do not necessarily flow to their highest-valued use. 
D)  are neither necessarily supplied by their lowest-cost producer nor do they flow to their highest-valued use.

Question 6

Even though shortages typically result from the imposition of price ceilings, the overall gains in economic efficiency outweigh the costs.

Accepted Answer

A) True 
 B)False

Question 7

Price floors encourage firms to provide ________ quality.

Accepted Answer

A)  too little 
B)  too much 
C)  the right amount of 
D)  no 
A)  too little 
B)  too much 
C)  the right amount of 
D)  no

Question 8

In 1972-1973, the swimming pools in California were heated but homes in New Jersey were cold, is an example of a(n):

Accepted Answer

A)  misallocation of resources caused by price controls. 
B)  market failure caused by speculators. 
C)  market inefficiency caused by monopoly oil companies. 
D)  excess supply of oil caused by the business cycle. 
A)  misallocation of resources caused by price controls. 
B)  market failure caused by speculators. 
C)  market inefficiency caused by monopoly oil companies. 
D)  excess supply of oil caused by the business cycle.

Question 9

The Civil Aeronautics Board regulated airline fares above the free-market rates, which led airlines to compete by offering fancy meals, wide seats, and frequent flights.

Accepted Answer

A) True 
 B)False

Question 10

Businesses may respond to price ceilings by closing down, reducing product quality, and by accepting bribes to sell their product.

Accepted Answer

A) True 
 B)False

Question 11

The effects of price ceilings:

Accepted Answer

A)  are limited to the price-controlled market. 
B)  weaken over time. 
C)  extend beyond the price-controlled market. 
D)  encourage the entry of new firms. 
A)  are limited to the price-controlled market. 
B)  weaken over time. 
C)  extend beyond the price-controlled market. 
D)  encourage the entry of new firms.

Question 12

Many times after natural disasters such as hurricanes, prices are controlled so that it is illegal to charge any price greater than "pre-hurricane" levels. For consumers who value these goods very highly, is this a good policy? If prices were allowed to increase, what do you think would happen to supply of these highly valued goods? Explain.

Accepted Answer

For consumers who value these goods (lik

Question 13

Which would MOST LIKELY result after setting a price ceiling on automobiles?

Accepted Answer

A)  a surplus of automobiles 
B)  more friendly automobile salesmen 
C)  fewer safety features 
D)  an increase in demand for automobiles 
A)  a surplus of automobiles 
B)  more friendly automobile salesmen 
C)  fewer safety features 
D)  an increase in demand for automobiles

Question 14

The statement that "price controls do not eliminate competition":

Accepted Answer

A)  is false because price controls prevent rich consumers from outbidding poor consumers for goods and services. 
B)  is false because firms are no longer allowed to exploit consumers by charging higher prices after hurricanes or major snowstorms. 
C)  reflects the idea that consumers will compete for price-controlled products by waiting in line and offering bribes to sellers. 
D)  means that sellers will increase the quality of their product when they cannot legally increase their prices. 
A)  is false because price controls prevent rich consumers from outbidding poor consumers for goods and services. 
B)  is false because firms are no longer allowed to exploit consumers by charging higher prices after hurricanes or major snowstorms. 
C)  reflects the idea that consumers will compete for price-controlled products by waiting in line and offering bribes to sellers. 
D)  means that sellers will increase the quality of their product when they cannot legally increase their prices.

Question 15

Which would be the least likely result of a price ceiling imposed in the market for gasoline?

Accepted Answer

A)  Buyers line up to buy gasoline. 
B)  Buyers bribe station attendants to fill up their tanks. 
C)  Some buyers will get less gasoline than they want. 
D)  Competition in the market will be eliminated. 
A)  Buyers line up to buy gasoline. 
B)  Buyers bribe station attendants to fill up their tanks. 
C)  Some buyers will get less gasoline than they want. 
D)  Competition in the market will be eliminated.

Question 16

Price floors make it illegal to compete for more customers by lowering prices, so firms compete by offering customers:

Accepted Answer

A)  various options. 
B)  more quantity. 
C)  more discount. 
D)  higher quality. 
A)  various options. 
B)  more quantity. 
C)  more discount. 
D)  higher quality.

Question 17

Economists call the maximum legal price a price ceiling because the price:

Accepted Answer

A)  cannot legally go lower than the ceiling. 
B)  cannot legally go higher than the ceiling. 
C)  must match the legally established ceiling price. 
D)  All of these answers are correct. 
A)  cannot legally go lower than the ceiling. 
B)  cannot legally go higher than the ceiling. 
C)  must match the legally established ceiling price. 
D)  All of these answers are correct.

Question 18

A "quality waste" refers to:

Accepted Answer

A)  an increase in quality under a price ceiling. 
B)  an increase in quality under a price floor. 
C)  a decrease in quality under a price ceiling. 
D)  a decrease in quality under a price floor. 
A)  an increase in quality under a price ceiling. 
B)  an increase in quality under a price floor. 
C)  a decrease in quality under a price ceiling. 
D)  a decrease in quality under a price floor.

Question 19

In the case of a nonbinding price floor, the price paid in the market will be:

Accepted Answer

A)  more than a free market equilibrium price. 
B)  less than a free market equilibrium price. 
C)  equal to a free market equilibrium price. 
D)  unable to be compared with a free market equilibrium price. 
A)  more than a free market equilibrium price. 
B)  less than a free market equilibrium price. 
C)  equal to a free market equilibrium price. 
D)  unable to be compared with a free market equilibrium price.

Question 20

Figure: Supply and Demand 1   Refer to figure. If, in this figure, the government enacts a price ______ by setting the good's price at $6, it will create a ______.

Accepted Answer

A)  floor; surplus of 4 units 
B)  ceiling; shortage of 10 units 
C)  floor; surplus of 10 units 
D)  ceiling; shortage of 4 units 
A)  floor; surplus of 4 units 
B)  ceiling; shortage of 10 units 
C)  floor; surplus of 10 units 
D)  ceiling; shortage of 4 units

Exam 8: Price Ceilings and Floors

A shortage results when:

We commonly associate ______ with agricultural products.

The minimum wage causes unemployment mainly among poor, unskilled workers.

When a price ceiling is in effect, goods and services:

Even though shortages typically result from the imposition of price ceilings, the overall gains in economic efficiency outweigh the costs.

Price floors encourage firms to provide ________ quality.

In 1972-1973, the swimming pools in California were heated but homes in New Jersey were cold, is an example of a(n):

The Civil Aeronautics Board regulated airline fares above the free-market rates, which led airlines to compete by offering fancy meals, wide seats, and frequent flights.

Businesses may respond to price ceilings by closing down, reducing product quality, and by accepting bribes to sell their product.

The effects of price ceilings:

Which would MOST LIKELY result after setting a price ceiling on automobiles?

The statement that "price controls do not eliminate competition":

Which would be the least likely result of a price ceiling imposed in the market for gasoline?

Price floors make it illegal to compete for more customers by lowering prices, so firms compete by offering customers:

Economists call the maximum legal price a price ceiling because the price:

A "quality waste" refers to:

In the case of a nonbinding price floor, the price paid in the market will be:

Figure: Supply and Demand 1 Refer to figure. If, in this figure, the government enacts a price ______ by setting the good's price at $6, it will create a ______.

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

Filters

Figure: Supply and Demand 1 Refer to figure. If, in this figure, the government enacts a price by setting the good's price at $6, it will create a .