Question 1

In 1974, there were ________ airline firms operating in the United States.

Accepted Answer

A)  10 
B)  79 
C)  38 
D)  16 
A)  10 
B)  79 
C)  38 
D)  16

Question 2

A price ceiling set below the equilibrium price always results in a shortage.

Accepted Answer

A) True 
 B)False

Question 3

To what does the Russian concept of blat refer?

Accepted Answer

A)  the barter system that developed in Russia as a result of the shortages of goods 
B)  the command economy system that was instituted in Russia 
C)  the act of standing in lines to buy goods 
D)  having connections that one can use to get favors 
A)  the barter system that developed in Russia as a result of the shortages of goods 
B)  the command economy system that was instituted in Russia 
C)  the act of standing in lines to buy goods 
D)  having connections that one can use to get favors

Question 4

The Soviet Union's experience with price controls demonstrated that, with careful planning, shortages and surpluses were a rare event.

Accepted Answer

A) True 
 B)False

Question 5

Price floors set above equilibrium encourage quality waste and wasteful lines.

Accepted Answer

A) True 
 B)False

Question 6

A price floor makes it illegal for firms to compete for more customers by lowering prices, causing firms to compete by offering customers higher quality.

Accepted Answer

A) True 
 B)False

Question 7

Price floors would create all of the following effects EXCEPT:

Accepted Answer

A)  surpluses. 
B)  deadweight loss. 
C)  wasteful decreases in product quality. 
D)  misallocation of resources. 
A)  surpluses. 
B)  deadweight loss. 
C)  wasteful decreases in product quality. 
D)  misallocation of resources.

Question 8

Price controls cause resources to be misallocated by:

Accepted Answer

A)  distorting the signals of suppliers' willingness to supply and eliminating the incentives for demanders to pay. 
B)  distorting the signals of demanders' willingness to pay and eliminating the incentives for suppliers to supply. 
C)  distorting the incentives for suppliers to supply and eliminating the signals of demanders' willingness to pay. 
D)  distorting the incentives for demanders to pay and eliminating the signals of suppliers' willingness to supply. 
A)  distorting the signals of suppliers' willingness to supply and eliminating the incentives for demanders to pay. 
B)  distorting the signals of demanders' willingness to pay and eliminating the incentives for suppliers to supply. 
C)  distorting the incentives for suppliers to supply and eliminating the signals of demanders' willingness to pay. 
D)  distorting the incentives for demanders to pay and eliminating the signals of suppliers' willingness to supply.

Question 9

How did economists try to prove that reductions in new apartment building in Ontario, Canada, during the 1970-1975 period were a result of debates on rent control?

Accepted Answer

A)  They showed that the economy was declining during this period. 
B)  They pointed to the fact that the OPEC oil crisis occurred at this time. 
C)  They contrasted the fact that apartment building was declining while new house building was rising, in the same state of the economy. 
D)  They pointed to the fact that rent controls had not been implemented during the OPEC oil crisis. 
A)  They showed that the economy was declining during this period. 
B)  They pointed to the fact that the OPEC oil crisis occurred at this time. 
C)  They contrasted the fact that apartment building was declining while new house building was rising, in the same state of the economy. 
D)  They pointed to the fact that rent controls had not been implemented during the OPEC oil crisis.

Question 10

A price ceiling is a minimum price below the market price that can be legally charged.

Accepted Answer

A) True 
 B)False

Question 11

The influence of the minimum wage in the American economy is very small because MOST workers earn:

Accepted Answer

A)  more than the minimum wage. 
B)  less than the minimum wage. 
C)  more or less than the minimum wage. 
D)  near the minimum wage. 
A)  more than the minimum wage. 
B)  less than the minimum wage. 
C)  more or less than the minimum wage. 
D)  near the minimum wage.

Question 12

When a price ceiling is in effect:

Accepted Answer

A)  some mutually beneficial trades between buyers and sellers do not occur. 
B)  no mutually beneficial trades between buyers and sellers occur. 
C)  all mutually beneficial trades between buyers and sellers occur. 
D)  it is impossible to say if any, some, or all beneficial trades between buyers or sellers fail to occur. 
A)  some mutually beneficial trades between buyers and sellers do not occur. 
B)  no mutually beneficial trades between buyers and sellers occur. 
C)  all mutually beneficial trades between buyers and sellers occur. 
D)  it is impossible to say if any, some, or all beneficial trades between buyers or sellers fail to occur.

Question 13

How can sellers increase profits when they face a price ceiling?

Accepted Answer

A)  charge a higher price for the good 
B)  charge a lower price for the good to undercut rival sellers 
C)  produce and sell more output 
D)  reduce the quality of the product and provide less customer service 
A)  charge a higher price for the good 
B)  charge a lower price for the good to undercut rival sellers 
C)  produce and sell more output 
D)  reduce the quality of the product and provide less customer service

Question 14

If a price floor is below the equilibrium price, a shortage will result.

Accepted Answer

A) True 
 B)False

Question 15

The deregulation of the airline industry caused:

Accepted Answer

A)  lower prices and more flights. 
B)  higher prices and fewer flights. 
C)  higher prices and more flights. 
D)  lower prices and fewer flights. 
A)  lower prices and more flights. 
B)  higher prices and fewer flights. 
C)  higher prices and more flights. 
D)  lower prices and fewer flights.

Question 16

Price controls are usually imposed in response to an:

Accepted Answer

A)  expected increase in prices. 
B)  expected decrease in prices. 
C)  unexpected increase in prices. 
D)  unexpected decrease in prices. 
A)  expected increase in prices. 
B)  expected decrease in prices. 
C)  unexpected increase in prices. 
D)  unexpected decrease in prices.

Question 17

Figure: Price Ceiling in a Generic Market   Refer to the figure. If the government imposes a price ceiling at the price of $4.00, the result would be a:

Accepted Answer

A)  surplus of 40 units. 
B)  shortage of 40 units 
C)  surplus of 20 units. 
D)  shortage of 20 units. 
A)  surplus of 40 units. 
B)  shortage of 40 units 
C)  surplus of 20 units. 
D)  shortage of 20 units.

Question 18

Which of the following best represents the misallocation of resources that would occur under a price ceiling on bottled water following a major hurricane?

Accepted Answer

A)  Bottles of water sit on the shelves because nobody can afford it. 
B)  A family in a distant state takes time off work to bring bottled water to the hurricane-ravaged area. 
C)  A family in a distant state gives bottled water to its dog, but a family in the hurricane area cannot find bottled water to drink. 
D)  Families in the hurricane area brush their teeth with bottled water but cannot find enough to drink. 
A)  Bottles of water sit on the shelves because nobody can afford it. 
B)  A family in a distant state takes time off work to bring bottled water to the hurricane-ravaged area. 
C)  A family in a distant state gives bottled water to its dog, but a family in the hurricane area cannot find bottled water to drink. 
D)  Families in the hurricane area brush their teeth with bottled water but cannot find enough to drink.

Question 19

Price controls instituted by President Nixon in 1971:

Accepted Answer

A)  generated shortages in the markets for construction, wool, oil, steel bars, toilets, jeans, and others. 
B)  generated shortages, confined mostly to just the markets for gasoline and oil. 
C)  were successfully able to control inflation by 1973. 
D)  were set above the equilibrium prices and made little impact as a result. 
A)  generated shortages in the markets for construction, wool, oil, steel bars, toilets, jeans, and others. 
B)  generated shortages, confined mostly to just the markets for gasoline and oil. 
C)  were successfully able to control inflation by 1973. 
D)  were set above the equilibrium prices and made little impact as a result.

Question 20

A binding price floor leads to a(n):

Accepted Answer

A)  shortage. 
B)  surplus. 
C)  equilibrium quantity. 
D)  quantity of zero units. 
A)  shortage. 
B)  surplus. 
C)  equilibrium quantity. 
D)  quantity of zero units.

Exam 8: Price Ceilings and Floors

In 1974, there were ________ airline firms operating in the United States.

A price ceiling set below the equilibrium price always results in a shortage.

To what does the Russian concept of blat refer?

The Soviet Union's experience with price controls demonstrated that, with careful planning, shortages and surpluses were a rare event.

Price floors set above equilibrium encourage quality waste and wasteful lines.

A price floor makes it illegal for firms to compete for more customers by lowering prices, causing firms to compete by offering customers higher quality.

Price floors would create all of the following effects EXCEPT:

Price controls cause resources to be misallocated by:

How did economists try to prove that reductions in new apartment building in Ontario, Canada, during the 1970-1975 period were a result of debates on rent control?

A price ceiling is a minimum price below the market price that can be legally charged.

The influence of the minimum wage in the American economy is very small because MOST workers earn:

When a price ceiling is in effect:

How can sellers increase profits when they face a price ceiling?

If a price floor is below the equilibrium price, a shortage will result.

The deregulation of the airline industry caused:

Price controls are usually imposed in response to an:

Figure: Price Ceiling in a Generic Market Refer to the figure. If the government imposes a price ceiling at the price of $4.00, the result would be a:

Which of the following best represents the misallocation of resources that would occur under a price ceiling on bottled water following a major hurricane?

Price controls instituted by President Nixon in 1971:

A binding price floor leads to a(n):

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