Exam 8: Price Ceilings and Floors

A major hurricane damages many oil refineries, which increases the market price of gasoline from $3.50 to $5 per gallon. The Attorney General threatens legal action against gas station owners who raise prices above pre-hurricane levels, causing gas station owners to reluctantly sell gas for $3.50 per gallon. At $3.50 per gallon, shortages cause buyers to wait in line for 2 hours. If the average purchase is 15 gallons and buyers value their time at $20 an hour, is the Attorney General helping?

Price ceilings do not have much effect:

Use the following to answer questions: Figure: Price Ceiling of Ps -(Figure: Price Ceiling of Ps) Refer to the figure. Suppose a price ceiling of Ps is imposed. As a result:

Which of these cases would likely result from an increase in minimum wage?

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

Use the following to answer questions: Figure: Price Ceilings and Valuation of Uses -(Figure: Price Ceilings and Valuation of Uses) Refer to the figure. Suppose a price ceiling of $15 goes into effect. If the goods are allocated only to the highest-value uses, the total consumer surplus in the market would be:

If, under price control, quantity supplied equals 50 units and quantity demanded equals 40 units, then the price control is a __________.

Which statement about price controls is most correct?

Use the following to answer questions: Figure: Labor Market 1 -(Figure: Labor Market 1) If there is a price floor set at $9, how much deadweight loss is created, if any?

Use the following to answer questions: Figure: Water Market -(Figure: Water Market) Refer to the figure: If a price floor in the diagram gets set at $8 a gallon, what is the deadweight loss?

Figure: Unskilled Labor Market Based on the figure, what is the number of unemployed workers if a minimum wage of $6 is set in this market for unskilled labor?

Price ceilings set by the government:

When a price floor is in effect:

Typical of price ceilings, the ancient Indian political philosopher known as Kautilya advocated controls to protect against merchant greed, fixing a profit of 5% over the fixed price of local commodities, including textiles. If severe weather were to render the textile market more uncertain (for example, if transportation routes were damaged), what would reasonably happen?

When the minimum price that can be legally charged is above the market price, we say there is a price:

Rent controls are typically implemented as a means of helping low-income families afford housing. Is this a good way to help poor families in general? Explain why or why not.

Puerto Rico's minimum wage increased dramatically as result of the 1938 Fair Labor Standards Act. This legislation:

Which is not an effect of a price floor?

Some economists compare the destructiveness of rent control to that of aerial bombardment because it causes:

Which observation would be consistent with the impact of price ceilings?