Exam 5: Price Controls and Quotas: Meddling With Markets

Figure: The Market for Round-Trip Airline Flights (Figure: The Market for Round-Trip Airline Flights) Look at the figure The Market for Round-Trip Airline Flights.The supply and demand graph represents the market for round-trip airline flights between Boston and New York.Suppose the mayor of New York decides to limit the number of flights to Q₁ to reduce air pollution.What area or areas represent deadweight loss after the quota is in place? A.A B.a + b + c C.c + e D.b + d + f

Figure: The Market for Clams (Figure: The Market for Clams) Look at the figure The Market for Clams.The government imposes a quota limiting sales of clams to 1,000 pounds.According to the figure, the quota rent per pound in this case is: A.$7.50. B.$5.00. C.$2.50. D.The quota rent cannot be determined from the information provided.

Which is not a correct statement about the undesirable side effects of a quantity control? A.Deadweight loss does not exist when there are quantity controls. B.Some mutually beneficial transactions do not occur because of quantity controls. C.When there are quantity controls, there are incentives for illegal activities. D.A wedge between the demand price and supply price is created with quantity controls.

To be binding, a price ceiling must be set at a price: A.lower than the equilibrium price. B.higher than the equilibrium price. C.the same as the equilibrium price. D.any price ceiling is binding.

Price controls encourage black markets because:

A price that the government guarantees farmers will receive for a particular crop is:

When the government removes a binding price floor: A.quantity demanded will decrease and quantity supplied will increase. B.quantity demanded will increase and quantity supplied will decrease. C.excess demand will develop. D.excess supply will develop.

The minimum wage, which sets a lower limit on the wages that workers can earn, is often above the equilibrium price.The minimum wage is an example of: A.a price floor. B.a price ceiling. C.a quota. D.an equilibrium price.

Government may choose to impose a price floor if: A.demanders can make a strong moral or political argument for lower prices. B.suppliers can make strong moral or political arguments for lower prices. C.demanders can make strong moral or political arguments for higher prices. D.suppliers can make strong moral or political arguments for higher prices.

Producers may supply a good with an inefficiently high quality if the government imposes: a price control.an excise tax. a binding price ceiling.

(Table: Market for Butter) Look at the table Market for Butter.If the government imposes a price ceiling of $0.90 per pound of butter, the quantity of butter actually purchased will be: A.10.5 million pounds. B.9.0 million pounds. C.1.5 million pounds. D.10.0 million pounds.

Price ceilings may be imposed if: A.demanders can make strong moral or political arguments for lower prices. B.suppliers can make strong moral or political arguments for lower prices. C.demanders can make strong moral or political arguments for higher prices. D.suppliers can make strong moral or political arguments for higher prices.

Figure: The Market for Hotel Rooms (Figure: The Market for Hotel Rooms) Look at the figure The Market for Hotel Rooms.If the quota rent per room is equal to $140, we know the quota limit is equal to:

If the government sets out to help low-income people by establishing a maximum amount that can be paid for rent: A.a price floor has been set and a shortage of rental units may occur. B.a price ceiling has been set and a shortage of rental units may occur. C.in the long run more rental units will appear. D.the quality of rental units will be inefficiently high.

Figure: The Shrimp Market (Figure: The Shrimp Market) Look at the figure The Shrimp Market.If the government imposes a quota limiting sales of shrimp to 1,000 pounds, the quota rent per pound is: A.$15. B.$10. C.$5. D.$0.

If the minimum wage is a binding price floor, then: A.the number of workers who want to work will be greater than the number of jobs available. B.the equilibrium wage will increase. C.there will be a job for everyone who is willing to work. D.business owners will hire more workers.

Figure: Supply and Demand (Figure: Supply and Demand) Look at the figure Supply and Demand.In the market shown in the figure, a binding price floor is represented by: A.P₁. B.P₂. C.P₃. D.point C.

Figure: Supply and Demand in Agriculture (Figure: Supply and Demand in Agriculture) Look at the figure Supply and Demand in Agriculture.If a price floor at P₄ is set to help improve farm incomes and the government wants to assure farmers that their output will be purchased, the government would have to purchase an amount of output equal to: A.Q₃ - Q0. B.Q₃ - Q₁. C.Q₂ - Q₁. D.Q₁ - Q₃.

When the minimum wage increases: A.unemployment among skilled workers decreases. B.fewer workers are willing to work off the books. C.employment of unskilled workers increases. D.unemployment among unskilled workers increases.

Price ceilings that lead to shortages will impose costs on society because they: