Exam 5: Price Controls and Quotas: Meddling With Markets

Suppose that the average cost of a doctor's visit is $100.If the government imposes a price ceiling of $50 on the cost of a doctor's visit, there will be: A.an excess supply of doctor's visits. B.an excess demand for doctor's visits. C.an increase in the equilibrium number of doctor's visits. D.no change in the number of doctor's visits.

Figure: Market I A.$15. B.$9. C.$6. D.$0.

In the rental housing market with price controls, the quantity of rental houses demanded exceeds the quantity of rental housing supplied.This price control must be a: A.price ceiling. B.price floor. C.quota. D.quantity control.

(Table: Market for Fried Twinkies) Look at the table Market for Fried Twinkies.Suppose the government decides to reduce fried Twinkie consumption as part of a "war on obesity." After careful study, the government decides to limit production (i.e., the government imposes a quota on production) of fried Twinkies to 5,000 for the current calendar year.Using the table, what price will producers charge if they obey the quota law? A.$1.20 B.$1.30 C.$1.50 D.The answer cannot be determined with this information.

The government imposes a price ceiling below the equilibrium price.The price ceiling will cause: A.demand to decrease. B.supply to increase. C.a shortage of the good. D.an increase in the quality of the good.

West African cotton farmers are very upset about the subsidies the U.S.government pays to American cotton farmers.One reason for this could be that subsidized cotton from the United States: A.leads to cotton surpluses in the United States and lower prices for West African farmers. B.raises the world price of cotton. C.has led to a global shortage of cotton. D.has led to an increase in the demand for West African cotton.

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 is the quota wedge? A.P₁ - P₂ B.P₂ - P₃ C.P₁ - P₃ D.P₁ + P₂

(Figure: Rent Controls) Look at the figure Rent Controls.If rent controls are set at Rent1: A.the shortage of rental units is the distance Q₃ - Q₁. B.some renters would be willing to pay a price as high as Rent4 for Q₁ units. C.no one would have to pay a higher actual price than Rent0, nor would anyone be willing to do so. D.there would be a surplus of rental units, but it is impossible to tell how large the surplus is based on the information provided.

(Table: The Market for Soda) Look at the table The Market for Soda.If the government imposes a price floor of $1.00 per can of soda, there will be: A.a shortage of 2 cans. B.a shortage of 3 cans. C.a surplus of 3 cans. D.equilibrium in the market for soda.

The market for apples is in equilibrium at a price of $0.50 per pound.If the government imposes a price ceiling in the market at a price of $0.40 per pound, then: A.quantity demanded will decrease. B.quantity supplied will increase. C.there will be a shortage of the good. D.the price ceiling will not affect the market price or output.

Figure: Quantity Controls (Figure: Quantity Controls) Look at the figure Quantity Controls.If the government decides to restrict the quantity that is sold to 100, which of the following is not a true statement? A.Total surplus will fall by areas C and E. B.The market is not at equilibrium. C.Consumer surplus is maximized. D.Mutually beneficial transactions have been missed.

Figure: Supply and Demand (Figure: Supply and Demand) Look at the figure Supply and Demand.In the market shown in the figure, a price ceiling of P₃ causes: A.a shortage equal to the distance AB. B.a surplus equal to the distance AB. C.a shortage equal to the distance DE. D.no change to the market.

A price floor is a ________ set the equilibrium price. A.minimum price; at B.maximum price; below C.minimum price; above D.maximum price; above

A minimum price set above the equilibrium price is a: A.demand price. B.supply price. C.price floor. D.price ceiling.

(Table: Market for Fried Twinkies) Look at the table The Market for Fried Twinkies.In response to popular anger over the high price of fried Twinkies and the extreme wealth of fried Twinkie producers, the government imposes a price ceiling of $1.20 per fried Twinkie.From this table, the price ceiling causes: A.a shortage of 3,000 fried Twinkies. B.a shortage of 5,000 fried Twinkies. C.a surplus of 8,000 fried Twinkies. D.a surplus of 3,000 fried Twinkies.

Figure: The Market for Hybrid Cars (Figure: The Market for Hybrid Cars) Look at the figure The Market for Hybrid Cars.If there were a binding price ceiling in the market for hybrid cars, one possible price would be equal to ________, consumers would demand ________, and producers would supply _. A.P₁; Q₁; Q₃ B.P₂; Q₂; Q₂ C.P₁; Q₃; Q₁ D.P₃; Q₃; Q₁

The persistent unwanted surplus that results from a price floor creates inefficiencies that include all of the following except: A.inefficiently low quality. B.inefficient allocation of sales among sellers. C.wasted resources. D.the temptation to break the law by selling below the legal price.

Suppose the Jamaican government sets coffee prices at $1 per pound, when the market price is $10.The government's actions will: A.improve efficiency, since the low prices will force producers to find cheaper production methods. B.result in coffee surpluses even in a coffee-rich country. C.cause coffee shortages even in a coffee-rich country. D.improve equality between rich and poor, since the poor can now afford coffee.

(Table: The Market for Soda) Look at the table The Market for Soda.If the government imposes a price ceiling of $1.00 per can of soda, the quantity of soda supplied will be: 7

Suppose the government sets a price floor below the current price of the good.This price floor will: A.result in an excess supply of the good. B.result in an excess demand for the good. C.have no effect on the price of the good. D.increase the quantity supplied of the good.