Question 1

A rent control scheme setting a maximum amount of rent paid below the equilibrium rental price would most likely be supported by:

Accepted Answer

A)  people who wish to rent such an apartment. 
B)  people who own rental apartments. 
C)  both renters and owners. 
D)  neither renters nor owners. 
A)  people who wish to rent such an apartment. 
B)  people who own rental apartments. 
C)  both renters and owners. 
D)  neither renters nor owners. A

Question 2

How does a price ceiling cause deadweight loss in the market?

Accepted Answer

If a market is allowed to reach equilibrium without government interference, the result is a price at which the quantity demanded equals the quantity supplied and total surplus (consumer surplus plus producer surplus) is maximized. A price ceiling moves the market away from that equilibrium price and quantity. The new quantity is less than the market equilibrium quantity, so transactions that would have been made at the market price cannot be made at the controlled price. These unfulfilled transactions mean consumer and producer surplus are lost.

Question 3

Use the following to answer questions:
Figure: Market I  
-(Figure: Market I) Look at the figure Market I. If a price floor of $15 is imposed on this market and the government chooses to purchase the surplus, the government must buy _____ units of the good and spend a total amount of _____ on its purchase.

Accepted Answer

A)  5; $75 
B)  10; $150 
C)  9; $135 
D)  9; $81 
A)  5; $75 
B)  10; $150 
C)  9; $135 
D)  9; $81 B

Question 4

Rent controls set a price ceiling below the equilibrium price, and therefore:

Accepted Answer

A)  quantity supplied exceeds the quantity demanded. 
B)  quantity demanded exceeds the quantity supplied. 
C)  a surplus of rental units will result. 
D)  all poor people will be helped. 
A)  quantity supplied exceeds the quantity demanded. 
B)  quantity demanded exceeds the quantity supplied. 
C)  a surplus of rental units will result. 
D)  all poor people will be helped.

Question 5

In a(n) _____ market goods or services are bought and sold illegally.

Accepted Answer

A)  black 
B)  uncontrolled 
C)  unregulated 
D)  unproductive 
A)  black 
B)  uncontrolled 
C)  unregulated 
D)  unproductive

Question 6

A price ceiling results in:

Accepted Answer

A)  inefficiency resulting from overproduction of the good. 
B)  inefficiency because transactions are held below the equilibrium quantity. 
C)  a decrease in wasted resources, as consumers find such goods more easily. 
D)  surpluses in the market, which eventually lead to inefficient production costs. 
A)  inefficiency resulting from overproduction of the good. 
B)  inefficiency because transactions are held below the equilibrium quantity. 
C)  a decrease in wasted resources, as consumers find such goods more easily. 
D)  surpluses in the market, which eventually lead to inefficient production costs.

Question 7

Use the following to answer questions:
Figure: Supply and Demand  
-(Figure: Supply and Demand) Look at the figure Supply and Demand. A price ceiling of P1 causes:

Accepted Answer

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)  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.

Question 8

When the government policy is to regulate the quantity of a good that can be bought and sold rather than the price at which it is transacted, it uses a:

Accepted Answer

A)  quota. 
B)  price control. 
C)  price ceiling. 
D)  price floor. 
A)  quota. 
B)  price control. 
C)  price ceiling. 
D)  price floor.

Question 9

Quota limits cause:

Accepted Answer

A)  the demand price to be above the supply price. 
B)  the quantity demanded to be more than the quantity supplied. 
C)  the quantity demanded to be less than the quantity supplied. 
D)  the demand price to be less than the supply price. 
A)  the demand price to be above the supply price. 
B)  the quantity demanded to be more than the quantity supplied. 
C)  the quantity demanded to be less than the quantity supplied. 
D)  the demand price to be less than the supply price.

Question 10

Use the following to answer question:
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 _____.

Accepted Answer

A)  P1; Q1; Q3 
B)  P2; Q2; Q2 
C)  P1; Q3; Q1 
D)  P3; Q3; Q1 
A)  P1; Q1; Q3 
B)  P2; Q2; Q2 
C)  P1; Q3; Q1 
D)  P3; Q3; Q1

Question 11

Which is NOT an inefficiency caused by price floors?

Accepted Answer

A)  inefficiently low quality 
B)  inefficient allocation of sales among sellers 
C)  wasted resources 
D)  illegal activity 
A)  inefficiently low quality 
B)  inefficient allocation of sales among sellers 
C)  wasted resources 
D)  illegal activity

Question 12

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:

Accepted Answer

A)  a price floor. 
B)  a price ceiling. 
C)  a quota. 
D)  an equilibrium price. 
A)  a price floor. 
B)  a price ceiling. 
C)  a quota. 
D)  an equilibrium price.

Question 13

Which of the following statements is (are) TRUE? I. Quantity controls drive a wedge between the demand price and the supply price of the good.
II) The difference between the demand price and the supply price at the quota limit is consumer surplus.
III) Quantity controls have no undesirable side effects.

Accepted Answer

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

Question 14

Use the following to answer questions:
Figure: The Market for Hybrid Cars  
-(Figure: The Market for Hybrid Cars) Look at the figure The Market for Hybrid Cars. What area represents consumer surplus if there is a binding price floor at P1?

Accepted Answer

A)  a 
B)  a + b 
C)  a + b + c 
D)  a + b + d 
A)  a 
B)  a + b 
C)  a + b + c 
D)  a + b + d

Question 15

Use the following to answer questions:
Table: The Market for Taxi Rides  
-(Table: The Market for Taxi Rides) Look at the table The Market for Taxi Rides. If a government quota limit at 6 million rides is imposed, the quota rent accruing to the owner of a taxi medallion will be _____ per ride, but there will be a total missed opportunity (inefficiency) to consumers and producers of _____ million rides.

Accepted Answer

A)  $1; 1 
B)  $2; 2 
C)  $3; 3 
D)  $4; 4 
A)  $1; 1 
B)  $2; 2 
C)  $3; 3 
D)  $4; 4

Question 16

Use the following to answer questions:
Figure: Market I  
-(Figure: Market I) Look at the figure Market I. A price floor at $15 would result in deadweight loss of:

Accepted Answer

A)  $9. 
B)  $10. 
C)  $20. 
D)  $40.50. 
A)  $9. 
B)  $10. 
C)  $20. 
D)  $40.50.

Question 17

A binding price floor in the market for wheat:

Accepted Answer

A)  increases the price paid by consumers. 
B)  decreases the price paid by consumers. 
C)  decreases the price received by farmers. 
D)  does not change the price received by farmers. 
A)  increases the price paid by consumers. 
B)  decreases the price paid by consumers. 
C)  decreases the price received by farmers. 
D)  does not change the price received by farmers.

Question 18

If the supply curve for clams is upward-sloping, a quota that is set below the equilibrium quantity will result in a supply price that is lower than the equilibrium price.

Accepted Answer

A) True 
 B)False

Question 19

The purpose of medallions issued in New York City in the 1930s was to:

Accepted Answer

A)  limit the number of people who used the subway during rush hour. 
B)  ensure that taxicabs met standards of safety and cleanliness. 
C)  give the owner the right to buy and sell securities on the New York Stock Exchange. 
D)  encourage citizens to buy their own cars. 
A)  limit the number of people who used the subway during rush hour. 
B)  ensure that taxicabs met standards of safety and cleanliness. 
C)  give the owner the right to buy and sell securities on the New York Stock Exchange. 
D)  encourage citizens to buy their own cars.

Question 20

The most likely reason that the government would implement a _____ is because it feels that the price is too low for _____.

Accepted Answer

A)  price ceiling; consumers 
B)  price floor; consumers 
C)  price ceiling; producers 
D)  price floor; producers 
A)  price ceiling; consumers 
B)  price floor; consumers 
C)  price ceiling; producers 
D)  price floor; producers

A rent control scheme setting a maximum amount of rent paid below the equilibrium rental price would most likely be supported by:

How does a price ceiling cause deadweight loss in the market?

Use the following to answer questions: Figure: Market I -(Figure: Market I) Look at the figure Market I. If a price floor of $15 is imposed on this market and the government chooses to purchase the surplus, the government must buy _ units of the good and spend a total amount of _ on its purchase.

Rent controls set a price ceiling below the equilibrium price, and therefore:

In a(n) _____ market goods or services are bought and sold illegally.

A price ceiling results in:

Use the following to answer questions: Figure: Supply and Demand -(Figure: Supply and Demand) Look at the figure Supply and Demand. A price ceiling of P₁causes:

When the government policy is to regulate the quantity of a good that can be bought and sold rather than the price at which it is transacted, it uses a:

Quota limits cause:

Which is NOT an inefficiency caused by price floors?

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:

Use the following to answer questions: Figure: The Market for Hybrid Cars -(Figure: The Market for Hybrid Cars) Look at the figure The Market for Hybrid Cars. What area represents consumer surplus if there is a binding price floor at P₁?

Use the following to answer questions: Figure: Market I -(Figure: Market I) Look at the figure Market I. A price floor at $15 would result in deadweight loss of:

A binding price floor in the market for wheat:

If the supply curve for clams is upward-sloping, a quota that is set below the equilibrium quantity will result in a supply price that is lower than the equilibrium price.

The purpose of medallions issued in New York City in the 1930s was to:

The most likely reason that the government would implement a _ is because it feels that the price is too low for _.

First Principles

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Elasticity

Taxes

International Trade

Decision Making by Individuals Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters

Exam 5: Price Controls and Quotas: Meddling With Markets

A rent control scheme setting a maximum amount of rent paid below the equilibrium rental price would most likely be supported by:

How does a price ceiling cause deadweight loss in the market?

Rent controls set a price ceiling below the equilibrium price, and therefore:

In a(n) _____ market goods or services are bought and sold illegally.

A price ceiling results in:

Use the following to answer questions: Figure: Supply and Demand -(Figure: Supply and Demand) Look at the figure Supply and Demand. A price ceiling of P1 causes:

When the government policy is to regulate the quantity of a good that can be bought and sold rather than the price at which it is transacted, it uses a:

Quota limits cause:

Which is NOT an inefficiency caused by price floors?

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:

Use the following to answer questions: Figure: The Market for Hybrid Cars -(Figure: The Market for Hybrid Cars) Look at the figure The Market for Hybrid Cars. What area represents consumer surplus if there is a binding price floor at P1?

Use the following to answer questions: Figure: Market I -(Figure: Market I) Look at the figure Market I. A price floor at $15 would result in deadweight loss of:

A binding price floor in the market for wheat:

If the supply curve for clams is upward-sloping, a quota that is set below the equilibrium quantity will result in a supply price that is lower than the equilibrium price.

The purpose of medallions issued in New York City in the 1930s was to:

The most likely reason that the government would implement a _____ is because it feels that the price is too low for _____.

First Principles

Economic Models: Trade-Offs and Trade 25

Supply and Demand

Consumer and Producer Surplus

Elasticity

Taxes

International Trade

Decision Making by Individuals Firms

The Rational Consumer

Behind the Supply Curve: Inputs and Costs

Perfect Competition and the Supply Curve

Monopoly

Oligopoly

Monopolistic Competition and Product Differentiation

Externalities

Public Goods Common Resources

The Economics of the Welfare

Factor Markets and the Distribution of Income

Uncertainty, Risk, and Private Information

Filters

Use the following to answer questions: Figure: Supply and Demand -(Figure: Supply and Demand) Look at the figure Supply and Demand. A price ceiling of P₁causes:

Use the following to answer questions: Figure: The Market for Hybrid Cars -(Figure: The Market for Hybrid Cars) Look at the figure The Market for Hybrid Cars. What area represents consumer surplus if there is a binding price floor at P₁?

The most likely reason that the government would implement a _ is because it feels that the price is too low for _.