Question 1

When a price ceiling is binding, the goods that are on sale are allocated to buyers using a method:

Accepted Answer

A)  of random allocation. 
B)  whereby the highest bidder wins. 
C)  whereby the lowest bidder wins. 
D)  whereby buyers purchase lottery tickets to see who will be able to buy the product. 
A)  of random allocation. 
B)  whereby the highest bidder wins. 
C)  whereby the lowest bidder wins. 
D)  whereby buyers purchase lottery tickets to see who will be able to buy the product.

Question 2

The chronic shortages of goods in the Soviet Union were:

Accepted Answer

A)  caused by the CIA's manipulation of the Soviet currency. 
B)  limited to luxury items, like yachts and airplanes. 
C)  the result of too much defense spending that hoarded resources away from the production of consumer goods. 
D)  beneficial to the party elite who traded scarce goods for favors and other scarce goods. 
A)  caused by the CIA's manipulation of the Soviet currency. 
B)  limited to luxury items, like yachts and airplanes. 
C)  the result of too much defense spending that hoarded resources away from the production of consumer goods. 
D)  beneficial to the party elite who traded scarce goods for favors and other scarce goods.

Question 3

When a price ceiling is in effect:

Accepted Answer

A)  there is no competition for goods. 
B)  suppliers have an incentive to provide really good customer service. 
C)  demanders compete for goods in short supply by accepting reductions in quality. 
D)  suppliers compete for customers by inefficiently raising quality levels. 
A)  there is no competition for goods. 
B)  suppliers have an incentive to provide really good customer service. 
C)  demanders compete for goods in short supply by accepting reductions in quality. 
D)  suppliers compete for customers by inefficiently raising quality levels.

Question 4

If an American teenager will work for $5 an hour and an employer is willing to pay that wage, but the minimum wage is $7.25 an hour and the employer is not willing to pay that much, the teenager goes unemployed and the market experiences:

Accepted Answer

A)  lost gains from trade. 
B)  wasteful increases in quality. 
C)  resource misallocations. 
D)  reductions in product quality. 
A)  lost gains from trade. 
B)  wasteful increases in quality. 
C)  resource misallocations. 
D)  reductions in product quality.

Question 5

Price ceilings:

Accepted Answer

A)  improve the allocation of resources because consumers with the greatest need for the product are more likely to afford the product. 
B)  misallocate resources because consumers who buy the product may not be the ones who value it the most. 
C)  misallocate resources because they allow consumers to compete against one another by offering sellers higher prices. 
D)  improve the allocation of resources because consumers are prevented from bidding up the price of products. 
A)  improve the allocation of resources because consumers with the greatest need for the product are more likely to afford the product. 
B)  misallocate resources because consumers who buy the product may not be the ones who value it the most. 
C)  misallocate resources because they allow consumers to compete against one another by offering sellers higher prices. 
D)  improve the allocation of resources because consumers are prevented from bidding up the price of products.

Question 6

For a price floor to prevent market forces from finding the equilibrium price, it must be set:

Accepted Answer

A)  above the equilibrium price, causing a market shortage. 
B)  below the equilibrium price, causing a market shortage. 
C)  below the equilibrium price, causing a market surplus. 
D)  above the equilibrium price, causing a market surplus. 
A)  above the equilibrium price, causing a market shortage. 
B)  below the equilibrium price, causing a market shortage. 
C)  below the equilibrium price, causing a market surplus. 
D)  above the equilibrium price, causing a market surplus.

Question 7

Under rent control, bribery is used to:

Accepted Answer

A)  allocate housing to the most deserving tenants. 
B)  make the total price of a rental property (including the bribe) less than the market price that would prevail without rent controls. 
C)  make the total price of a rental property (including the bribe) closer to the market price that would prevail without rent controls. 
D)  allocate the housing to the poorest individuals in the market. 
A)  allocate housing to the most deserving tenants. 
B)  make the total price of a rental property (including the bribe) less than the market price that would prevail without rent controls. 
C)  make the total price of a rental property (including the bribe) closer to the market price that would prevail without rent controls. 
D)  allocate the housing to the poorest individuals in the market.

Question 8

If quantity supplied equals 85 units and quantity demanded equals 80 units under a price control, then it is a:

Accepted Answer

A)  binding price ceiling. 
B)  binding price floor. 
C)  nonbinding price ceiling. 
D)  nonbinding price floor. 
A)  binding price ceiling. 
B)  binding price floor. 
C)  nonbinding price ceiling. 
D)  nonbinding price floor.

Question 9

Which statement about price ceilings is correct?

Accepted Answer

A)  Whether a price ceiling is placed below or above the equilibrium price, it will always cause deadweight loss. 
B)  A price ceiling will only cause deadweight loss if it is placed above the equilibrium price. 
C)  A price ceiling will only cause deadweight loss if it is placed below the equilibrium price. 
D)  Whether a price ceiling is placed below or above the equilibrium price, it will always cause a shortage of the good. 
A)  Whether a price ceiling is placed below or above the equilibrium price, it will always cause deadweight loss. 
B)  A price ceiling will only cause deadweight loss if it is placed above the equilibrium price. 
C)  A price ceiling will only cause deadweight loss if it is placed below the equilibrium price. 
D)  Whether a price ceiling is placed below or above the equilibrium price, it will always cause a shortage of the good.

Question 10

Deregulation of the airline markets reduced waste, increased efficiency, and:

Accepted Answer

A)  eliminated competition. 
B)  improved allocation of resources. 
C)  raised prices. 
D)  caused an increase in costs. 
A)  eliminated competition. 
B)  improved allocation of resources. 
C)  raised prices. 
D)  caused an increase in costs.

Question 11

Rent control laws are most commonly a form of price ceiling.

Accepted Answer

A) True 
 B)False

Question 12

Which statement(s) is TRUE?
I. Price floors are legally established minimum prices for goods and services.
II. Price floors create surpluses, whereas price ceilings create shortages.
III. Price floors reduce quality of goods and services.

Accepted Answer

A)  I and II only 
B)  II only 
C)  I, II, and III 
D)  I only 
A)  I and II only 
B)  II only 
C)  I, II, and III 
D)  I only

Question 13

An increase in the minimum wage would likely increase unemployment among which group of workers?

Accepted Answer

A)  college graduates 
B)  unskilled workers 
C)  female workers 
D)  older workers 
A)  college graduates 
B)  unskilled workers 
C)  female workers 
D)  older workers

Question 14

Use the following to answer questions:
Figure: Minimum Wage  
-(Figure: Minimum Wage) Refer to the figure. At a minimum wage of $8, firms are willing to hire ________ workers.

Accepted Answer

A)  45 
B)  25 
C)  35 
D)  more than 45 
A)  45 
B)  25 
C)  35 
D)  more than 45

Question 15

A market's demand and supply curves are given by:
Qd = 400 - 3P
Qs = 100 + 2P
where Qd is quantity demanded, Qs quantity supplied, and P is the price.
a. Suppose the government enacts a price ceiling of $60. What is the quantity demanded and supplied? Is the market characterized by a shortage?
b. Suppose that supply conditions in the market change to Qs = 80 + 2P. Given the price ceiling of $60, what happens to quantity demanded and quantity supplied? Is the market characterized by a shortage? How much are consumers willing to pay per unit for the quantity transacted?

Accepted Answer

a. Q_d = 400 – 3(60) = 220; Q_s = 100 + 2(60

Question 16

From an efficiency standpoint, rent controls:

Accepted Answer

A)  increase efficiency by allowing those households who could not afford high rents before to be able to purchase housing. 
B)  increase efficiency by increasing consumer surplus. 
C)  decrease efficiency because both buyers and sellers would be better off if the price of rents were allowed to rise. 
D)  decrease efficiency because they make it illegal to trade. 
A)  increase efficiency by allowing those households who could not afford high rents before to be able to purchase housing. 
B)  increase efficiency by increasing consumer surplus. 
C)  decrease efficiency because both buyers and sellers would be better off if the price of rents were allowed to rise. 
D)  decrease efficiency because they make it illegal to trade.

Question 17

A minimum wage mostly creates unemployment among older workers.

Accepted Answer

A) True 
 B)False

Question 18

Which statement(s) is TRUE?
I. Rent controls prevent apartments from being allocated to people who value them the most.
II. With a system of rent controls, landlords are more likely to make needed repairs to their properties as a way of attracting renters.
III. Although inefficient, rent controls are the best way to help the poor afford housing.

Accepted Answer

A)  I only 
B)  I and III only 
C)  I, II, and III 
D)  II and III only 
A)  I only 
B)  I and III only 
C)  I, II, and III 
D)  II and III only

Question 19

At a price ceiling of $1 per loaf of bread, quantity supplied is 99 loaves, which is less than quantity demanded. What must be true for the 100th loaf of bread?

Accepted Answer

A)  Consumers do not value the 100th loaf of bread. 
B)  The cost of producing the 100th loaf of bread is less than $1.00. 
C)  Consumers value the 100th loaf of bread at less than $1.00. 
D)  Consumers value the 100th loaf of bread more than it costs producers to make it. 
A)  Consumers do not value the 100th loaf of bread. 
B)  The cost of producing the 100th loaf of bread is less than $1.00. 
C)  Consumers value the 100th loaf of bread at less than $1.00. 
D)  Consumers value the 100th loaf of bread more than it costs producers to make it.

Question 20

Housing vouchers are a better option than rent controls when a government is attempting to make housing affordable for the poor. The reason is that the housing voucher entitles the tenant to:

Accepted Answer

A)  live in a rent-controlled apartment. 
B)  free maintenance of their apartment. 
C)  a certain dollar amount off the rent of any apartment they choose. 
D)  live in a luxury apartment of their choice. 
A)  live in a rent-controlled apartment. 
B)  free maintenance of their apartment. 
C)  a certain dollar amount off the rent of any apartment they choose. 
D)  live in a luxury apartment of their choice.

Exam 8: Price Ceilings and Floors

When a price ceiling is binding, the goods that are on sale are allocated to buyers using a method:

The chronic shortages of goods in the Soviet Union were:

When a price ceiling is in effect:

If an American teenager will work for $5 an hour and an employer is willing to pay that wage, but the minimum wage is $7.25 an hour and the employer is not willing to pay that much, the teenager goes unemployed and the market experiences:

Price ceilings:

For a price floor to prevent market forces from finding the equilibrium price, it must be set:

Under rent control, bribery is used to:

If quantity supplied equals 85 units and quantity demanded equals 80 units under a price control, then it is a:

Which statement about price ceilings is correct?

Deregulation of the airline markets reduced waste, increased efficiency, and:

Rent control laws are most commonly a form of price ceiling.

Which statement(s) is TRUE? I. Price floors are legally established minimum prices for goods and services. II. Price floors create surpluses, whereas price ceilings create shortages. III. Price floors reduce quality of goods and services.

An increase in the minimum wage would likely increase unemployment among which group of workers?

Use the following to answer questions: Figure: Minimum Wage -(Figure: Minimum Wage) Refer to the figure. At a minimum wage of $8, firms are willing to hire ________ workers.

From an efficiency standpoint, rent controls:

A minimum wage mostly creates unemployment among older workers.

At a price ceiling of $1 per loaf of bread, quantity supplied is 99 loaves, which is less than quantity demanded. What must be true for the 100th loaf of bread?

Housing vouchers are a better option than rent controls when a government is attempting to make housing affordable for the poor. The reason is that the housing voucher entitles the tenant to:

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

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