Question 1

An alternative to rent control that has been used in some cities since the 1990s is:

Accepted Answer

A)  confiscation of property from landlords. 
B)  policies that prevent evictions. 
C)  rent regulation that limits the rate of increase in rent. 
D)  higher taxes on rental income of landlords. 
A)  confiscation of property from landlords. 
B)  policies that prevent evictions. 
C)  rent regulation that limits the rate of increase in rent. 
D)  higher taxes on rental income of landlords.

Question 2

If the minimum wage is lowered and closer to the market level, the:

Accepted Answer

A)  gains from trade would decrease, compared to a higher minimum wage. 
B)  gains from trade would increase, compared to a higher minimum wage. 
C)  lost gains from trade would increase, compared to a higher minimum wage. 
D)  deadweight loss would increase, compared to a higher minimum wage. 
A)  gains from trade would decrease, compared to a higher minimum wage. 
B)  gains from trade would increase, compared to a higher minimum wage. 
C)  lost gains from trade would increase, compared to a higher minimum wage. 
D)  deadweight loss would increase, compared to a higher minimum wage.

Question 3

Use the following to answer questions:
Figure: Price Ceiling  
-(Figure: Price Ceiling) Refer to the figure. A price ceiling of $10 results in a:

Accepted Answer

A)  shortage of 270 units. 
B)  shortage of 40 units. 
C)  surplus of 270 units. 
D)  surplus of 40 units. 
A)  shortage of 270 units. 
B)  shortage of 40 units. 
C)  surplus of 270 units. 
D)  surplus of 40 units.

Question 4

Which is the MOST correct statement about the impact of rent controls?

Accepted Answer

A)  The short-run supply curve for apartments is inelastic, so rent controls create larger shortages in the short run than in the long run. 
B)  The short-run supply curve for apartments is inelastic, so rent controls create smaller shortages in the short run than in the long run. 
C)  The long-run supply curve for apartments is inelastic, so rent controls create larger shortages in the long run than in the short run. 
D)  The long-run supply curve for apartments is inelastic, so rent controls create smaller shortages in the long run than in the short run. 
A)  The short-run supply curve for apartments is inelastic, so rent controls create larger shortages in the short run than in the long run. 
B)  The short-run supply curve for apartments is inelastic, so rent controls create smaller shortages in the short run than in the long run. 
C)  The long-run supply curve for apartments is inelastic, so rent controls create larger shortages in the long run than in the short run. 
D)  The long-run supply curve for apartments is inelastic, so rent controls create smaller shortages in the long run than in the short run.

Question 5

Deadweight loss occurs when:

Accepted Answer

A)  consumer surplus transforms into producer surplus. 
B)  there is a shortage of a good or service. 
C)  consumer and/or producer surplus decrease without the surplus going to anyone. 
D)  the gains from trade are lowered due to shifts in the supply or demand curve. 
A)  consumer surplus transforms into producer surplus. 
B)  there is a shortage of a good or service. 
C)  consumer and/or producer surplus decrease without the surplus going to anyone. 
D)  the gains from trade are lowered due to shifts in the supply or demand curve.

Question 6

Rent controls create large shortages in the long run rather than the short run because the long-run supply curve for apartments is inelastic.

Accepted Answer

A) True 
 B)False

Question 7

The shortage of oil ended when:

Accepted Answer

A)  Ronald Reagan eliminated price controls on oil in January 1981. 
B)  the government instituted minimum miles-per-gallon requirements for cars. 
C)  Congress passed the Energy Saver Act of 1985. 
D)  the U.S. Senate began regulating oil industry profits. 
A)  Ronald Reagan eliminated price controls on oil in January 1981. 
B)  the government instituted minimum miles-per-gallon requirements for cars. 
C)  Congress passed the Energy Saver Act of 1985. 
D)  the U.S. Senate began regulating oil industry profits.

Question 8

Universal price controls in the Soviet Union:

Accepted Answer

A)  led to widespread prosperity. 
B)  harmed powerful interests in the short run. 
C)  caused never-ending shortages and misallocations. 
D)  meant no one ever had to wait in line. 
A)  led to widespread prosperity. 
B)  harmed powerful interests in the short run. 
C)  caused never-ending shortages and misallocations. 
D)  meant no one ever had to wait in line.

Question 9

Use the following to answer questions:
Figure: Effects of Price Ceilings  
-(Figure: Effects of Price Ceilings) Refer to the figure. At a price ceiling of $2:

Accepted Answer

A)  bribes of $1 per unit may be common. 
B)  seller discounts of $1 may be common. 
C)  bribes of $3 per unit may be common. 
D)  seller discounts of $3 per unit may be common. 
A)  bribes of $1 per unit may be common. 
B)  seller discounts of $1 may be common. 
C)  bribes of $3 per unit may be common. 
D)  seller discounts of $3 per unit may be common.

Question 10

Price floors on airlines:

Accepted Answer

A)  kept ticket prices much lower than unregulated ticket prices. 
B)  caused airlines to compete by offering customers higher-quality services, such as better meals and wider seats. 
C)  reduced the quality of airline services (for example, less frequent flights, peanuts instead of meals). 
D)  gave airlines an incentive to lower ticket prices to increase ticket sales. 
A)  kept ticket prices much lower than unregulated ticket prices. 
B)  caused airlines to compete by offering customers higher-quality services, such as better meals and wider seats. 
C)  reduced the quality of airline services (for example, less frequent flights, peanuts instead of meals). 
D)  gave airlines an incentive to lower ticket prices to increase ticket sales.

Question 11

Figure: Allocating Goods under Price Ceilings   
Refer to the figure. Using the information provided in the graph, answer the following questions:
a. If the goods were allocated only to those users who had the highest-value uses, find the total dollar amount of consumer surplus.
b. If the goods are allocated randomly between the high-value uses and the low-value uses, then what is the average value of the good?
c. If goods are allocated randomly, what is the total dollar amount of consumer surplus?

Accepted Answer

a. Consumer surplus, if the goods were a

Question 12

Vietnam's foreign minister said, "The Americans couldn't destroy Hanoi, but we have destroyed our city by very low rents." He was referring to the fact that:

Accepted Answer

A)  very low rents provided very little income for carrying out warfare. 
B)  very low rents turned portions of city housing into a state of disrepair and slum-like conditions. 
C)  the Americans did not install proper city housing codes in Hanoi. 
D)  bombing a city is always worse than rent control. 
A)  very low rents provided very little income for carrying out warfare. 
B)  very low rents turned portions of city housing into a state of disrepair and slum-like conditions. 
C)  the Americans did not install proper city housing codes in Hanoi. 
D)  bombing a city is always worse than rent control.

Question 13

If a price floor is above the equilibrium price it will have no effect in the market.

Accepted Answer

A) True 
 B)False

Question 14

Use the following to answer questions:
Figure: Losses from Price Ceilings  
-(Figure: Losses from Price Ceilings) Refer to the figure. At a price ceiling of $1, the area representing the total value of wasted time is ________, and the area of the deadweight loss is ________.

Accepted Answer

A)  ab; de 
B)  bd; ce 
C)  abdf; ce 
D)  bc; de 
A)  ab; de 
B)  bd; ce 
C)  abdf; ce 
D)  bc; de

Question 15

Figure: Labor Market 2   Refer to the figure. In the figure, there will be 6 unemployed workers at a minimum wage of:

Accepted Answer

A)  $4. 
B)  $6. 
C)  $8. 
D)  $7. 
A)  $4. 
B)  $6. 
C)  $8. 
D)  $7.

Question 16

Price controls cause resources to be ________ not just geographically, but also across different ________ of those resources.

Accepted Answer

A)  overutilized; types 
B)  properly allocated; demands 
C)  cheaper; uses 
D)  misallocated; uses 
A)  overutilized; types 
B)  properly allocated; demands 
C)  cheaper; uses 
D)  misallocated; uses

Question 17

Illustrate on a demand and supply diagram how the existence of a price floor would distort the market outcome, and specify what effect (i.e., shortage or surplus) the price floor may create.

Accepted Answer

When the minimum price that can be legal

Question 18

In Puerto Rico in 1938, the market wage was 3¢ to 4¢ per hour when Congress passed a law raising it to 25¢ per hour. Workers in Puerto Rico were:

Accepted Answer

A)  happy with their raise. 
B)  hoping for a higher minimum wage. 
C)  devastated. 
D)  indifferent. 
A)  happy with their raise. 
B)  hoping for a higher minimum wage. 
C)  devastated. 
D)  indifferent.

Question 19

The lower the price ceiling is relative to the market equilibrium price, the:

Accepted Answer

A)  larger the surplus. 
B)  smaller the surplus. 
C)  smaller the shortage. 
D)  larger the shortage. 
A)  larger the surplus. 
B)  smaller the surplus. 
C)  smaller the shortage. 
D)  larger the shortage.

Question 20

Prices ceilings misallocate resources because with them resources are not necessarily allocated to their highest-valued use.

Accepted Answer

A) True 
 B)False

Exam 8: Price Ceilings and Floors

An alternative to rent control that has been used in some cities since the 1990s is:

If the minimum wage is lowered and closer to the market level, the:

Use the following to answer questions: Figure: Price Ceiling -(Figure: Price Ceiling) Refer to the figure. A price ceiling of $10 results in a:

Which is the MOST correct statement about the impact of rent controls?

Deadweight loss occurs when:

Rent controls create large shortages in the long run rather than the short run because the long-run supply curve for apartments is inelastic.

The shortage of oil ended when:

Universal price controls in the Soviet Union:

Use the following to answer questions: Figure: Effects of Price Ceilings -(Figure: Effects of Price Ceilings) Refer to the figure. At a price ceiling of $2:

Price floors on airlines:

Vietnam's foreign minister said, "The Americans couldn't destroy Hanoi, but we have destroyed our city by very low rents." He was referring to the fact that:

If a price floor is above the equilibrium price it will have no effect in the market.

Use the following to answer questions: Figure: Losses from Price Ceilings -(Figure: Losses from Price Ceilings) Refer to the figure. At a price ceiling of $1, the area representing the total value of wasted time is ________, and the area of the deadweight loss is ________.

Figure: Labor Market 2 Refer to the figure. In the figure, there will be 6 unemployed workers at a minimum wage of:

Price controls cause resources to be ________ not just geographically, but also across different ________ of those resources.

Illustrate on a demand and supply diagram how the existence of a price floor would distort the market outcome, and specify what effect (i.e., shortage or surplus) the price floor may create.

In Puerto Rico in 1938, the market wage was 3¢ to 4¢ per hour when Congress passed a law raising it to 25¢ per hour. Workers in Puerto Rico were:

The lower the price ceiling is relative to the market equilibrium price, the:

Prices ceilings misallocate resources because with them resources are not necessarily allocated to their highest-valued use.

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

Use the following to answer questions: Figure: Losses from Price Ceilings -(Figure: Losses from Price Ceilings) Refer to the figure. At a price ceiling of $1, the area representing the total value of wasted time is , and the area of the deadweight loss is .

Price controls cause resources to be not just geographically, but also across different of those resources.