Question 1

The most common example of a price being controlled above market levels involves a good for which the:

Accepted Answer

A)  sellers outnumber the buyers. 
B)  buyers outnumber the sellers. 
C)  market is controlled by a monopolist. 
D)  market is controlled by the government. 
A)  sellers outnumber the buyers. 
B)  buyers outnumber the sellers. 
C)  market is controlled by a monopolist. 
D)  market is controlled by the government.

Question 2

Most economists favor price controls as a way of allocating resources.

Accepted Answer

A) True 
 B)False

Question 3

Price ceilings reduce quality because:

Accepted Answer

A)  buyers are willing to accept a lower quality of goods with lower prices. 
B)  sellers facing excess demand cannot raise prices to increase profit. 
C)  the law would mandate the quality of goods to match the price of the goods. 
D)  None of the answers are correct. 
A)  buyers are willing to accept a lower quality of goods with lower prices. 
B)  sellers facing excess demand cannot raise prices to increase profit. 
C)  the law would mandate the quality of goods to match the price of the goods. 
D)  None of the answers are correct.

Question 4

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

Accepted Answer

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

Question 5

If a price ceiling on gasoline is imposed, the total price of gasoline a buyer pays is likely to equal the legal price:

Accepted Answer

A)  minus the value of wasted time. 
B)  minus the value of bribery. 
C)  plus the value of consumer surplus. 
D)  plus the value of corruption. 
A)  minus the value of wasted time. 
B)  minus the value of bribery. 
C)  plus the value of consumer surplus. 
D)  plus the value of corruption.

Question 6

The producer and consumer surplus lost as a result of price ceilings is often referred to as deadweight loss.

Accepted Answer

A) True 
 B)False

Question 7

If quantity supplied equals 40 units and quantity demanded equals 50 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 8

Use the following to answer questions:
Figure: Government Price Controls  
-(Figure: Government Price Controls) Refer to the figure. If the government sets the price ceiling at $31, there will be:

Accepted Answer

A)  a shortage of 15 units. 
B)  a surplus of 15 units. 
C)  a supply of 20 units. 
D)  no effect on the market. 
A)  a shortage of 15 units. 
B)  a surplus of 15 units. 
C)  a supply of 20 units. 
D)  no effect on the market.

Question 9

The shortages that result from imposing price controls:

Accepted Answer

A)  are rarely recognized by the public as a result of the price controls themselves. 
B)  typically lead the public to lobby politicians to repeal the price controls. 
C)  only last for a short while until markets can adjust to the new lower prices. 
D)  create higher prices. 
A)  are rarely recognized by the public as a result of the price controls themselves. 
B)  typically lead the public to lobby politicians to repeal the price controls. 
C)  only last for a short while until markets can adjust to the new lower prices. 
D)  create higher prices.

Question 10

Graphically illustrate supply and demand in a market where a price floor has been instituted above the equilibrium price. Is there a shortage or a surplus of this good because of the price floor? On your graph, shade in the area of lost gains from trade and explain why this results in market inefficiency.

Accepted Answer

A price floor instituted above the equil

Question 11

What is blat?

Accepted Answer

A)  a long line 
B)  the time costs associated with buying price-controlled goods 
C)  the use of political connections to get favors 
D)  a dilapidated rent-controlled apartment. 
A)  a long line 
B)  the time costs associated with buying price-controlled goods 
C)  the use of political connections to get favors 
D)  a dilapidated rent-controlled apartment.

Question 12

The presence of price floors in a market usually is an indication that:

Accepted Answer

A)  there is an insufficient quantity of a good or service being produced. 
B)  the forces of supply and demand are unable to establish an equilibrium price. 
C)  sellers of the good or service outnumber the buyers. 
D)  policymakers believe the price floor does not involve inequities. 
A)  there is an insufficient quantity of a good or service being produced. 
B)  the forces of supply and demand are unable to establish an equilibrium price. 
C)  sellers of the good or service outnumber the buyers. 
D)  policymakers believe the price floor does not involve inequities.

Question 13

Which statement is NOT an effect of a price ceiling?

Accepted Answer

A)  surpluses 
B)  misallocation of resources 
C)  loss of gains from trade 
D)  wasteful lineups 
A)  surpluses 
B)  misallocation of resources 
C)  loss of gains from trade 
D)  wasteful lineups

Question 14

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

Accepted Answer

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

Question 15

Which statement(s) is TRUE?
I. In the long run, rent-control laws create incentives to turn apartments into hotels or parking garages.
II. Apartment owners are less likely to do routine maintenance when the government controls apartment rents.
III. Rent-controlled apartments are more likely to be allocated by discrimination than non-rent-controlled apartments.

Accepted Answer

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

Question 16

The quantity exchanged of a good ______ under a binding price ceiling.

Accepted Answer

A)  rises 
B)  remains the same 
C)  falls 
D)  changes in an indeterminate direction 
A)  rises 
B)  remains the same 
C)  falls 
D)  changes in an indeterminate direction

Question 17

People typically blame price controls for the problems caused by price controls.

Accepted Answer

A) True 
 B)False

Question 18

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, how big is the shortage or surplus?

Accepted Answer

A)  60,000 gallons in surplus 
B)  120,000 gallons in surplus 
C)  60,000 gallons in shortage 
D)  12,000 gallons in shortage 
A)  60,000 gallons in surplus 
B)  120,000 gallons in surplus 
C)  60,000 gallons in shortage 
D)  12,000 gallons in shortage

Question 19

Assume that a market is defined by two equations: the demand equation is Qd = 60 - 5P, and the supply equation is Qs = 5P. Now suppose that a price ceiling is instituted at $3. Use this information to answer the questions below.
a. What is the equilibrium price and quantity in this market?
b. What is the amount of the shortage at the price ceiling?
c. What is the total value of time wasted by consumers standing in line?

Accepted Answer

a. Equilibrium P = $6, and equilibrium Q

Question 20

Using a supply and demand diagram as a reference, discuss the way a price ceiling causes a reduction in gains from trade.

Accepted Answer

@#IMG-DLM& The diagram is a copy of Figure 8.3 in

Exam 8: Price Ceilings and Floors

The most common example of a price being controlled above market levels involves a good for which the:

Most economists favor price controls as a way of allocating resources.

Price ceilings reduce quality because:

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

If a price ceiling on gasoline is imposed, the total price of gasoline a buyer pays is likely to equal the legal price:

The producer and consumer surplus lost as a result of price ceilings is often referred to as deadweight loss.

If quantity supplied equals 40 units and quantity demanded equals 50 units under a price control, then it is a:

Use the following to answer questions: Figure: Government Price Controls -(Figure: Government Price Controls) Refer to the figure. If the government sets the price ceiling at $31, there will be:

The shortages that result from imposing price controls:

What is blat?

The presence of price floors in a market usually is an indication that:

Which statement is NOT an effect of a price ceiling?

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

The quantity exchanged of a good ______ under a binding price ceiling.

People typically blame price controls for the problems caused by price controls.

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, how big is the shortage or surplus?

Using a supply and demand diagram as a reference, discuss the way a price ceiling causes a reduction in gains from trade.

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