Exam 8: Price Ceilings and Floors

Which statement(s) is TRUE? Price floors set above the equilibrium price cause: I. shortages. II. surpluses. III. deadweight losses.

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

A nonbinding price floor leads to a(n):

A deadweight loss is the total of:

The price floor regulation of the airline industry:

In the late 1500s, the city of Antwerp was under siege by the Duke of Parma. The siege caused the price of food to rise so the government of Antwerp established a price ceiling set at a value similar to that before the siege. (This bears a striking resemblance to modern anti-gouging laws used in times of disaster.) Merchants, fearing the Duke's ability to sink their ships, refused to ferry food into the city that they could only sell at a normal price. Which important effect of a price control BEST describes this story?

Use the following to answer questions: Figure: Price Ceilings and Valuation of Uses -(Figure: Price Ceilings and Valuation of Uses) Refer to the figure. The single highest value a user is willing to pay is how many dollars for the product?

If a seller facing excess demand is unable to raise the price of the good due to a price ceiling, a likely result will be:

In the case of a binding price floor, economists expect the quality level of a good to:

If a price ceiling on gasoline results in long lines at the gas station and a rich businessman and an elderly retiree both need gasoline, who would have the higher-valued use for gasoline, and who would have the lower opportunity cost of waiting in line?

Do price ceilings misallocate resources?

When a crisis in the Middle East reduces the supply of oil, the price system rationally responds by reallocating oil from highest-value uses to lower-valued uses.

At a price ceiling of $6 per sheet of drywall, quantity demanded is 100 and quantity supplied is 75. What will happen in the drywall market if there is an increased demand for drywall in the construction industry?

Once search and waiting costs are taken into account, price ceilings can cause consumers to spend more for a good than if prices were unregulated.

A price ceiling is a legal maximum on the price of the good or service.

Shortages in economic markets are inefficient because:

Under airline regulation, within-state flights were cheaper than interstate flights of comparable length.

A price floor is:

An employer has work that can be done in the same time by one high-skilled worker paid $50 an hour or by eight low-skilled workers paid $5 an hour each and the minimum wage is $7.25 an hour. In this scenario, who benefits from the minimum wage, the high-skilled worker or the low-skilled workers? (Hint: Who would you hire for the job?)

In situations of excess demand, sellers might lower quality when they are unable to raise prices because they wish to: