Question 1

Under rent control, tenants can expect:

Accepted Answer

A)  lower rent and higher-quality housing. 
B)  lower rent and lower-quality housing. 
C)  higher rent and a shortage of housing. 
D)  higher rent and a surplus of housing. 
A)  lower rent and higher-quality housing. 
B)  lower rent and lower-quality housing. 
C)  higher rent and a shortage of housing. 
D)  higher rent and a surplus of housing.

Question 2

If price ceilings do not allow prices to rise, then demanders will be unable to signal their needs to suppliers.

Accepted Answer

A) True 
 B)False

Question 3

The Edict on Maximum Prices, established by the Roman Emperor Diocletian, created price ceilings on various jobs and goods in a failed effort to curb inflation. For example, legal pay for a farm laborer could be no more than 10.8¢ a day (payment set in modern currency). If the market rate of farm labor was 12¢ a day, which would be a plausible consequence of this law?

Accepted Answer

A)  farms would produce more food than they otherwise would 
B)  nothing unusual 
C)  a laborer would work less hard than he otherwise would 
D)  an increase in unemployment for farm hands 
A)  farms would produce more food than they otherwise would 
B)  nothing unusual 
C)  a laborer would work less hard than he otherwise would 
D)  an increase in unemployment for farm hands

Question 4

Which statement is FALSE?

Accepted Answer

A)  A frost that destroys half the orange crop will create a surplus of oranges. 
B)  It is possible to have a shortage of a good even if its supplies are abundant. 
C)  Politicians often blame speculators and profiteers for rising prices rather than changes in supply and demand. 
D)  To eliminate a shortage, prices must rise. 
A)  A frost that destroys half the orange crop will create a surplus of oranges. 
B)  It is possible to have a shortage of a good even if its supplies are abundant. 
C)  Politicians often blame speculators and profiteers for rising prices rather than changes in supply and demand. 
D)  To eliminate a shortage, prices must rise.

Question 5

The Federal minimum wage causes unemployment MOSTLY among:

Accepted Answer

A)  middle-class workers. 
B)  young unskilled workers. 
C)  college graduates. 
D)  highly skilled workers. 
A)  middle-class workers. 
B)  young unskilled workers. 
C)  college graduates. 
D)  highly skilled workers.

Question 6

Ancient Athens had strict controls on the price of wheat, and punishment for violation of the price control was death. The speech by a politician imploring a jury to convict an alleged violator of the law survives to this day: "And consider that in consequence of this vocation, very many have already stood trial for their lives; and so great the [earnings] which they are able to derive from it that they prefer to risk their life every day, rather than cease to draw from, the public, their improper profits." Which of the following is the most likely reason why merchants were willing to risk their lives to charge more than the legal price?

Accepted Answer

A)  Merchants were irrationally blinded by greed. 
B)  Merchants were not aware of the law, since it was not publically declared. 
C)  Merchants could not stay in business if they didn't raise prices. 
D)  Merchants did not like the general public, who approved of these laws, and this is how some chose their revenge. 
A)  Merchants were irrationally blinded by greed. 
B)  Merchants were not aware of the law, since it was not publically declared. 
C)  Merchants could not stay in business if they didn't raise prices. 
D)  Merchants did not like the general public, who approved of these laws, and this is how some chose their revenge.

Question 7

If firms are unable to lower prices because of a legally mandated price floor, then:

Accepted Answer

A)  firms are better off (higher profits) at the expense of consumers. 
B)  firms will often compete by offering higher-quality goods than consumers are willing to pay for. 
C)  consumers will decrease their demand due to the high prices. 
D)  quantity supplied will be less than quantity demanded. 
A)  firms are better off (higher profits) at the expense of consumers. 
B)  firms will often compete by offering higher-quality goods than consumers are willing to pay for. 
C)  consumers will decrease their demand due to the high prices. 
D)  quantity supplied will be less than quantity demanded.

Question 8

Minimum wage laws are an example of price floors.

Accepted Answer

A) True 
 B)False

Question 9

One benefit of shortages is that they eliminate competition since buyers cannot compete for goods by paying higher prices.

Accepted Answer

A) True 
 B)False

Question 10

What would be the LEAST likely result of a price floor in the market for airline travel?

Accepted Answer

A)  rapid replacement of old airliners with new aircraft 
B)  narrow seats and basic meals like peanuts or chips with a coffee or soda 
C)  special incentives like airline mileage clubs to attract customers 
D)  excellent engine maintenance 
A)  rapid replacement of old airliners with new aircraft 
B)  narrow seats and basic meals like peanuts or chips with a coffee or soda 
C)  special incentives like airline mileage clubs to attract customers 
D)  excellent engine maintenance

Question 11

Southwest Airlines was able to enter the national market in 1978 as a result of:

Accepted Answer

A)  winning a series of lawsuits. 
B)  accumulating market share. 
C)  airline deregulation. 
D)  establishment of new price controls. 
A)  winning a series of lawsuits. 
B)  accumulating market share. 
C)  airline deregulation. 
D)  establishment of new price controls.

Question 12

Briefly discuss the U.S. experience with price ceilings during the early 1970s. What effects of the price ceilings became apparent during this period, and how did that period eventually end?

Accepted Answer

In August 1971, President Richard Nixon

Question 13

Rent control in New York City has resulted in:

Accepted Answer

A)  people living in luxury apartments and paying low rents. 
B)  people having to bribe landlords to get apartments. 
C)  people having difficulty finding apartments. 
D)  All of the answers are correct. 
A)  people living in luxury apartments and paying low rents. 
B)  people having to bribe landlords to get apartments. 
C)  people having difficulty finding apartments. 
D)  All of the answers are correct.

Question 14

Raising the minimum wage is not an effective way to eliminate poverty because increases in the minimum wage:

Accepted Answer

A)  do not increase incomes. 
B)  create incentives for workers to exit the labor force. 
C)  create higher unemployment. 
D)  tend to simply increase birth rates among low-income households. 
A)  do not increase incomes. 
B)  create incentives for workers to exit the labor force. 
C)  create higher unemployment. 
D)  tend to simply increase birth rates among low-income households.

Question 15

Economists blame the long lines at gasoline stations in the United States during the 1970s as well as the long delays in construction projects on:

Accepted Answer

A)  consumers who bought gas too frequently. 
B)  the Organization of Petroleum Exporting Countries (OPE
C) . 
C)  major oil companies operating in the United States. 
D)  U.S. government regulation of gasoline prices. 
A)  consumers who bought gas too frequently. 
B)  the Organization of Petroleum Exporting Countries (OPE
C) . 
C)  major oil companies operating in the United States. 
D)  U.S. government regulation of gasoline prices.

Question 16

Over time, housing shortages caused by rent control ______ because the supply of housing is ______ elastic in the long run.

Accepted Answer

A)  increase; less 
B)  increase; more 
C)  decrease; less 
D)  decrease; more 
A)  increase; less 
B)  increase; more 
C)  decrease; less 
D)  decrease; more

Question 17

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 highest-value use and the lowest-value use are equally likely to be satisfied, then the average value of the product is:

Accepted Answer

A)  $45. 
B)  $30. 
C)  $25. 
D)  $35. 
A)  $45. 
B)  $30. 
C)  $25. 
D)  $35.

Question 18

The minimum wage is an example of a price floor in the labor market.

Accepted Answer

A) True 
 B)False

Question 19

Setting the maximum legal price above the market price will cause

Accepted Answer

A)  a shortage to develop. 
B)  the market to reach an equilibrium outcome. 
C)  quantity supplied to exceed quantity demanded. 
D)  market inefficiencies. 
A)  a shortage to develop. 
B)  the market to reach an equilibrium outcome. 
C)  quantity supplied to exceed quantity demanded. 
D)  market inefficiencies.

Question 20

Use the following to answer questions:
Figure: Price Controls  
-(Figure: Price Controls) Refer to the figure. Which price control would cause a shortage of 20 units of the good?

Accepted Answer

A)  a price ceiling of $10 
B)  a price floor of $10 
C)  a price ceiling of $6 
D)  a price floor of $6 
A)  a price ceiling of $10 
B)  a price floor of $10 
C)  a price ceiling of $6 
D)  a price floor of $6

Exam 8: Price Ceilings and Floors

Under rent control, tenants can expect:

If price ceilings do not allow prices to rise, then demanders will be unable to signal their needs to suppliers.

Which statement is FALSE?

The Federal minimum wage causes unemployment MOSTLY among:

If firms are unable to lower prices because of a legally mandated price floor, then:

Minimum wage laws are an example of price floors.

One benefit of shortages is that they eliminate competition since buyers cannot compete for goods by paying higher prices.

What would be the LEAST likely result of a price floor in the market for airline travel?

Southwest Airlines was able to enter the national market in 1978 as a result of:

Briefly discuss the U.S. experience with price ceilings during the early 1970s. What effects of the price ceilings became apparent during this period, and how did that period eventually end?

Rent control in New York City has resulted in:

Raising the minimum wage is not an effective way to eliminate poverty because increases in the minimum wage:

Economists blame the long lines at gasoline stations in the United States during the 1970s as well as the long delays in construction projects on:

Over time, housing shortages caused by rent control ______ because the supply of housing is ______ elastic in the long run.

The minimum wage is an example of a price floor in the labor market.

Setting the maximum legal price above the market price will cause

Use the following to answer questions: Figure: Price Controls -(Figure: Price Controls) Refer to the figure. Which price control would cause a shortage of 20 units of the good?

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

Over time, housing shortages caused by rent control because the supply of housing is elastic in the long run.