Question 1

Which of the following is true of price ceilings?

Accepted Answer

A) Firms must charge the price established as a price ceiling. 
B) If the ceiling price is set above the free-market equilibrium price it will have no effect on the market. 
C) A ceiling price below the free-market equilibrium price is not binding. 
D) With a non-binding ceiling price an excess demand for the product will develop. 
E) With a binding ceiling price a surplus of the commodity will develop. 
A) Firms must charge the price established as a price ceiling. 
B) If the ceiling price is set above the free-market equilibrium price it will have no effect on the market. 
C) A ceiling price below the free-market equilibrium price is not binding. 
D) With a non-binding ceiling price an excess demand for the product will develop. 
E) With a binding ceiling price a surplus of the commodity will develop. B

Question 2

Assume that the long-run supply of housing is highly elastic.The imposition of binding rent controls will lead to

Accepted Answer

A) a reduction in the housing shortage over time. 
B) a worsening of the housing shortage over time. 
C) no significant change in the housing shortage over time. 
D) only a temporary housing shortage. 
E) the price of rental housing to revert back to its free-market equilibrium level. 
A) a reduction in the housing shortage over time. 
B) a worsening of the housing shortage over time. 
C) no significant change in the housing shortage over time. 
D) only a temporary housing shortage. 
E) the price of rental housing to revert back to its free-market equilibrium level. B

Question 3

Each point on a supply curve shows the ________ acceptable price to firms for selling that unit; this price reflects ________ to firms from producing that unit.

Accepted Answer

A) minimum; the equilibrium price 
B) maximum; the additional value 
C) minimum; the additional value 
D) maximum; the additional cost 
E) minimum; the additional cost 
A) minimum; the equilibrium price 
B) maximum; the additional value 
C) minimum; the additional value 
D) maximum; the additional cost 
E) minimum; the additional cost E

Question 4

Consider the Canadian market for barley.Suppose a marketing board sets a production quota which is below the equilibrium quantity.The quota will cause the price of barley to ________ and the total revenue earned by Canadian barley farmers to ________.

Accepted Answer

A) rise; rise if demand is inelastic 
B) rise; rise if demand is elastic 
C) fall; fall if demand is inelastic 
D) fall; fall if demand is elastic 
E) remain unchanged; remain unchanged 
A) rise; rise if demand is inelastic 
B) rise; rise if demand is elastic 
C) fall; fall if demand is inelastic 
D) fall; fall if demand is elastic 
E) remain unchanged; remain unchanged

Question 5

Demand and Supply Schedules for Chocolate Bars
   TABLE 5-1
-Refer to Table 5-1.Suppose the government imposed a price of $1.80 per chocolate bar.A likely result from this policy is

Accepted Answer

A) the development of a black market in chocolate bars. 
B) the allocation of chocolate bars by sellers preference. 
C) the allocation of chocolate bars on a first-come,first-serve basis. 
D) the stockpiling of unsold inventories of chocolate bars. 
E) the rationing of chocolate bars. 
A) the development of a black market in chocolate bars. 
B) the allocation of chocolate bars by sellers preference. 
C) the allocation of chocolate bars on a first-come,first-serve basis. 
D) the stockpiling of unsold inventories of chocolate bars. 
E) the rationing of chocolate bars.

Question 6

At any disequilibrium price,whether government controlled or not,the quantity actually exchanged is determined by

Accepted Answer

A) the elasticity of supply. 
B) the elasticity of demand. 
C) government decree. 
D) the lesser of quantity demanded and quantity supplied. 
E) the greater of quantity demanded and quantity supplied. 
A) the elasticity of supply. 
B) the elasticity of demand. 
C) government decree. 
D) the lesser of quantity demanded and quantity supplied. 
E) the greater of quantity demanded and quantity supplied.

Question 7

FIGURE 5-4
-Refer to Figure 5-4.The difference between supply curve S1 and supply curve S2 in this market for apartments is that

Accepted Answer

A) S1 is not affected by a government controlled rental price. 
B) S2 is not affected by a government controlled rental price. 
C) S1 is more elastic than S2. 
D) S1 is a short-run supply curve and S2 is a long-run supply curve. 
E) S1 is a long-run supply curve and S2 is a short-run supply curve. 
A) S1 is not affected by a government controlled rental price. 
B) S2 is not affected by a government controlled rental price. 
C) S1 is more elastic than S2. 
D) S1 is a short-run supply curve and S2 is a long-run supply curve. 
E) S1 is a long-run supply curve and S2 is a short-run supply curve.

Question 8

Suppose the government establishes a ceiling on the price of rental accommodation that is lower than the free-market equilibrium price.In this case,

Accepted Answer

A) construction of new rental units will be encouraged. 
B) the rental housing market will be unaffected. 
C) those people who obtain rental units at the ceiling price will benefit. 
D) a surplus of current rental units will develop. 
E) the current stock of rental housing will be better maintained as there is a shortage of housing. 
A) construction of new rental units will be encouraged. 
B) the rental housing market will be unaffected. 
C) those people who obtain rental units at the ceiling price will benefit. 
D) a surplus of current rental units will develop. 
E) the current stock of rental housing will be better maintained as there is a shortage of housing.

Question 9

FIGURE 5-5
-Refer to Figure 5-5.At the market-clearing price and quantity of $30 per hour and 4000 hours of gardening services,we can say that

Accepted Answer

A) economic surplus could be increased at a lower price because there would be more value to consumers. 
B) economic surplus could be increased at a higher price because firms would generate more revenue. 
C) economic surplus is maximized and the market is efficient. 
D) the market is inefficient because there are some consumers who are not purchasing at this price. 
E) the market is efficient because the government has imposed a market-clearing price and quantity. 
A) economic surplus could be increased at a lower price because there would be more value to consumers. 
B) economic surplus could be increased at a higher price because firms would generate more revenue. 
C) economic surplus is maximized and the market is efficient. 
D) the market is inefficient because there are some consumers who are not purchasing at this price. 
E) the market is efficient because the government has imposed a market-clearing price and quantity.

Question 10

If the equilibrium price for some product is $1000,a price ceiling of $1200 will result in

Accepted Answer

A) the same general effects as a price floor of $1200. 
B) the same general effects as an administered price of $1200. 
C) the same general effects as a price ceiling of $600. 
D) massive surpluses of the good. 
E) no effects because the price ceiling is not binding at that price. 
A) the same general effects as a price floor of $1200. 
B) the same general effects as an administered price of $1200. 
C) the same general effects as a price ceiling of $600. 
D) massive surpluses of the good. 
E) no effects because the price ceiling is not binding at that price.

Question 11

In competitive markets,binding price floors and binding price ceilings lead to

Accepted Answer

A) a reduction in deadweight loss. 
B) fairer prices for consumers and producers,and therefore are better for society as a whole. 
C) an overall increase in economic surplus,and therefore to market efficiency. 
D) a maximization of economic surplus. 
E) an overall reduction in economic surplus,and therefore to market inefficiency. 
A) a reduction in deadweight loss. 
B) fairer prices for consumers and producers,and therefore are better for society as a whole. 
C) an overall increase in economic surplus,and therefore to market efficiency. 
D) a maximization of economic surplus. 
E) an overall reduction in economic surplus,and therefore to market inefficiency.

Question 12

The shortages associated with a binding price ceiling will be the smallest when

Accepted Answer

A) both supply and demand are highly elastic. 
B) both supply and demand are highly inelastic. 
C) supply is highly elastic and demand is highly inelastic. 
D) supply is highly inelastic and demand is highly elastic. 
E) none of the above-the size of the shortage has nothing to do with demand and supply elasticities. 
A) both supply and demand are highly elastic. 
B) both supply and demand are highly inelastic. 
C) supply is highly elastic and demand is highly inelastic. 
D) supply is highly inelastic and demand is highly elastic. 
E) none of the above-the size of the shortage has nothing to do with demand and supply elasticities.

Question 13

FIGURE 5-7
-Refer to Figure 5-7.The market for good X is in equilibrium at P0 and Q0.Now suppose the government imposes a ________ at P2.One result would be ________.

Accepted Answer

A) price floor; an increase in economic surplus represented by area 1 
B) price floor; a deadweight loss represented by areas 5 and 6 
C) price ceiling; an increase in economic surplus represented by areas 2 and 5 
D) price floor; a deadweight loss represented by area 8 
E) price ceiling; a deadweight loss represented by areas 5 and 6 
A) price floor; an increase in economic surplus represented by area 1 
B) price floor; a deadweight loss represented by areas 5 and 6 
C) price ceiling; an increase in economic surplus represented by areas 2 and 5 
D) price floor; a deadweight loss represented by area 8 
E) price ceiling; a deadweight loss represented by areas 5 and 6

Question 14

Consider a competitive labour market.The likely consequence of a binding minimum wage in this labour market is

Accepted Answer

A) a labour shortage. 
B) a lower wage for all individuals. 
C) a higher wage for all individuals. 
D) excess demand for workers. 
E) unemployment. 
A) a labour shortage. 
B) a lower wage for all individuals. 
C) a higher wage for all individuals. 
D) excess demand for workers. 
E) unemployment.

Question 15

Suppose the government sets a particular price in the market for gold,which results in an excess supply.In this situation,

Accepted Answer

A) the market is in equilibrium. 
B) the market is in disequilibrium. 
C) there are unsuccessful buyers. 
D) the gold market has not reached the point of saturation. 
E) no gold will be exchanged. 
A) the market is in equilibrium. 
B) the market is in disequilibrium. 
C) there are unsuccessful buyers. 
D) the gold market has not reached the point of saturation. 
E) no gold will be exchanged.

Question 16

FIGURE 5-2
-Refer to Figure 5-2.A price floor set at $2.50 will result in

Accepted Answer

A) a shortage of 5 units. 
B) a shortage of 10 units. 
C) a surplus of 10 units. 
D) a surplus of 5 units. 
E) no change to the market outcomes. 
A) a shortage of 5 units. 
B) a shortage of 10 units. 
C) a surplus of 10 units. 
D) a surplus of 5 units. 
E) no change to the market outcomes.

Question 17

If the free-market equilibrium price for some product is $25,then a legal price ceiling set at $15 will bring about

Accepted Answer

A) the same general effects as a price ceiling of $25. 
B) the same general effects as an equilibrium price of $15. 
C) no change in the market outcomes. 
D) a surplus of the good. 
E) a shortage of the good. 
A) the same general effects as a price ceiling of $25. 
B) the same general effects as an equilibrium price of $15. 
C) no change in the market outcomes. 
D) a surplus of the good. 
E) a shortage of the good.

Question 18

FIGURE 5-5
-Refer to Figure 5-5.Suppose this market for gardening services is in a free-market equilibrium.If the government then imposes a price floor of $50 per hour for gardening services,the result would be

Accepted Answer

A) a loss of economic surplus of the areas 6 and 7. 
B) a loss of economic surplus of the areas 2 and 6. 
C) a loss of economic surplus of the area 1. 
D) a loss of economic surplus of the areas 2,3,4,6,and 7. 
E) a loss of economic surplus of the areas 1,2,3,and 4. 
A) a loss of economic surplus of the areas 6 and 7. 
B) a loss of economic surplus of the areas 2 and 6. 
C) a loss of economic surplus of the area 1. 
D) a loss of economic surplus of the areas 2,3,4,6,and 7. 
E) a loss of economic surplus of the areas 1,2,3,and 4.

Question 19

If the government fixes the price of good X above its free-market equilibrium level,we should expect

Accepted Answer

A) a surplus of good X to occur. 
B) a shortage of good X to occur. 
C) an excess demand for good X. 
D) a black market to arise for good X. 
E) a new free-market equilibrium price to be established. 
A) a surplus of good X to occur. 
B) a shortage of good X to occur. 
C) an excess demand for good X. 
D) a black market to arise for good X. 
E) a new free-market equilibrium price to be established.

Question 20

FIGURE 5-6
-Refer to Figure 5-6.The market for good X is in equilibrium at P0 and Q0.Economic surplus is represented by

Accepted Answer

A) areas 1 and 5. 
B) areas 2,3,4,6,7,8. 
C) areas 1,2,3,5,6. 
D) areas 1,2,3,4,5,6,7,8. 
E) areas 2,3,4,6,7,8,9. 
A) areas 1 and 5. 
B) areas 2,3,4,6,7,8. 
C) areas 1,2,3,5,6. 
D) areas 1,2,3,4,5,6,7,8. 
E) areas 2,3,4,6,7,8,9.

Exam 5: Price Controls and Market Efficiency

Which of the following is true of price ceilings?

Assume that the long-run supply of housing is highly elastic.The imposition of binding rent controls will lead to

Each point on a supply curve shows the ________ acceptable price to firms for selling that unit; this price reflects ________ to firms from producing that unit.

Consider the Canadian market for barley.Suppose a marketing board sets a production quota which is below the equilibrium quantity.The quota will cause the price of barley to ________ and the total revenue earned by Canadian barley farmers to ________.

Demand and Supply Schedules for Chocolate Bars TABLE 5-1 -Refer to Table 5-1.Suppose the government imposed a price of $1.80 per chocolate bar.A likely result from this policy is

At any disequilibrium price,whether government controlled or not,the quantity actually exchanged is determined by

FIGURE 5-4 -Refer to Figure 5-4.The difference between supply curve S1 and supply curve S2 in this market for apartments is that

Suppose the government establishes a ceiling on the price of rental accommodation that is lower than the free-market equilibrium price.In this case,

FIGURE 5-5 -Refer to Figure 5-5.At the market-clearing price and quantity of $30 per hour and 4000 hours of gardening services,we can say that

If the equilibrium price for some product is $1000,a price ceiling of $1200 will result in

In competitive markets,binding price floors and binding price ceilings lead to

The shortages associated with a binding price ceiling will be the smallest when

FIGURE 5-7 -Refer to Figure 5-7.The market for good X is in equilibrium at P0 and Q0.Now suppose the government imposes a ________ at P2.One result would be ________.

Consider a competitive labour market.The likely consequence of a binding minimum wage in this labour market is

Suppose the government sets a particular price in the market for gold,which results in an excess supply.In this situation,

FIGURE 5-2 -Refer to Figure 5-2.A price floor set at $2.50 will result in

If the free-market equilibrium price for some product is $25,then a legal price ceiling set at $15 will bring about

FIGURE 5-5 -Refer to Figure 5-5.Suppose this market for gardening services is in a free-market equilibrium.If the government then imposes a price floor of $50 per hour for gardening services,the result would be

If the government fixes the price of good X above its free-market equilibrium level,we should expect

FIGURE 5-6 -Refer to Figure 5-6.The market for good X is in equilibrium at P0 and Q0.Economic surplus is represented by

Economic Issues and Concepts

Economic Theories,Data,and Graphs

Demand, Supply, and Price

Elasticity

Consumer Behaviour

Producers in the Short Run

Producers in the Long Run

Competitive Markets

Monopoly, cartels, and Price Discrimination

Imperfect Competition and Strategic Behaviour

Economic Efficiency and Public Policy

How Factor Markets Work

Labour Markets and Income Inequality

Interest Rates and the Capital Market

Market Failures and Government Intervention

The Economics of Environmental Protection

Taxation and Public Expenditure

What Macroeconomics Is All About

The Measurement of National Income

The Simplest Short-Run Macro Model

Adding Government and Trade to the Simple Macro Model

Output and Prices in the Short Run

From the Short Run to the Long Run: The Adjustment of Factor Prices

Long-Run Economic Growth

Money and Banking

Money, Interest Rates, and Economic Activity

Monetary Policy in Canada

Inflation and Disinflation

Unemployment Fluctuations and the Nairu

Government Debt and Deficits

The Gains From International Trade

Trade Policy

Exchange Rates and the Balance of Payments

Filters

Each point on a supply curve shows the acceptable price to firms for selling that unit; this price reflects to firms from producing that unit.

Consider the Canadian market for barley.Suppose a marketing board sets a production quota which is below the equilibrium quantity.The quota will cause the price of barley to and the total revenue earned by Canadian barley farmers to .

FIGURE 5-4 -Refer to Figure 5-4.The difference between supply curve S₁ and supply curve S₂ in this market for apartments is that

FIGURE 5-7 -Refer to Figure 5-7.The market for good X is in equilibrium at P₀and Q₀.Now suppose the government imposes a at P₂.One result would be .

FIGURE 5-6 -Refer to Figure 5-6.The market for good X is in equilibrium at P₀ and Q₀.Economic surplus is represented by