Deck 5: Price Controls and Market Efficiency

Question 1

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

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.

Answer 1

the lesser of quantity demanded and quantity supplied.

Question 2

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

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.

Answer 2

unemployment.

Question 3

In which type of market would a government be most likely to establish a ʺlegalʺ price floor?

A)housing market
B)labour market
C)diamond market
D)electricity market
E)natural gas market

Answer 3

labour market

Question 4

In free and competitive markets,shortages are eliminated by

A)government price controls.
B)rationing.
C)black markets.
D)price increases.
E)price decreases.

Question 5

Which of the following statements about government price controls is most accurate.They

A)act as a guideline to producers as to what is a fair price.
B)inform consumers what is the maximum price they should pay.
C)usually set upper or lower limits on prices.
D)ensure that the actual price is at its free-market equilibrium.
E)ensure that transactions take place at a fair price.

Question 6

Consider a market in which there is a government-set price.If there is excess demand at this price,

A)the market is in its free-market equilibrium.
B)the market is in disequilibrium.
C)there are unsuccessful sellers.
D)the product has not reached the point of saturation.
E)none of the product will be exchanged.

Question 7

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

A)shortages.
B)a reduction in quantities exchanged.
C)surpluses.
D)production control by the government.
E)more equitable distributions of commodities.

Question 8

A binding price floor is a

A)minimum price,below equilibrium,below which price is not allowed to fall.
B)maximum price,above equilibrium,which price is not allowed to exceed.
C)minimum price,above equilibrium,below which price is not allowed to fall.
D)maximum price,below equilibrium,which price is not allowed to exceed.
E)any minimum price below which price is not allowed to fall.

Question 9

In free and competitive markets,surpluses are eliminated by

A)government price controls.
B)government purchases.
C)black markets.
D)price increases.
E)price decreases.

Question 10

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

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 11

A legal price floor is a

A)price set by the government at which all goods or services must be legally sold.
B)maximum price above which sales cannot legally be made.
C)minimum price below which sales cannot legally be made.
D)price above which there would be no demand.
E)price below which there would be no supply.

Question 12

A legally imposed upper limit on a price is called

A)a price floor.
B)a price support.
C)an excise price.
D)a price ceiling.
E)a government price.

Question 13

A minimum permissible price established by the government is called

A)the equilibrium price.
B)the margin price.
C)a price ceiling.
D)a price floor.
E)the fair price.

Question 14

For a price floor to be binding,it must be set

A)very low.
B)at the free-market equilibrium price.
C)below the free-market equilibrium price.
D)at a level such that there exists some unsatisfied demand.
E)above the free-market equilibrium price.

Question 15

The price of a good or a service can be determined by free interaction of demand and supply or by a government price regulation.One important difference between these two price-determining methods is

A)there are no shortages or surpluses at the free-market equilibrium price.
B)regulated prices are fairer since more people can then afford the goods or services.
C)that a regulated price above the equilibrium price will always result in shortages.
D)the government is in the best position to know the needs of the people.
E)one is capitalist and the other is communist.

Question 16

Consider the market for iron ore,an important industrial input.Suppose the government sets a price floor below the free-market equilibrium price.The result will be

A)a continuation of the free-market equilibrium price and quantity.
B)the quantity demanded will exceed quantity supplied and there will be a shortage in the market.
C)the quantity supplied will exceed quantity demanded and there will be a surplus in the market.
D)a new free-market equilibrium at a lower price and higher output level.
E)increased government revenue.

Question 17

Consider the market for pulp and paper.Suppose,in an attempt to help this industry,the government sets a price floor above the free-market equilibrium price.The result will be

A)a continuation of the market-determined equilibrium price and quantity.
B)the quantity demanded will exceed quantity supplied and there will be a shortage in the market.
C)the quantity supplied will exceed quantity demanded and there will be a surplus in the market.
D)a new free-market equilibrium at a higher price and lower output level.
E)increased government revenue.

Question 18

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

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 19

In a market where we observe a disequilibrium,quantity exchanged is determined

A)by the quantity demanded.
B)by the greater of quantity demanded and quantity supplied.
C)by neither quantity demanded nor quantity supplied.
D)by the lesser of quantity demanded and quantity supplied.
E)by the quantity supplied.

Question 20

Government price controls are policies that attempt to maintain the

A)quantity bought at less than the quantity sold.
B)quantity sold at less than the quantity bought.
C)the price at some disequilibrium value.
D)market price at equilibrium.
E)price requested by the seller.

Question 21

A legal price ceiling,if it is binding,is a

A)minimum price,below equilibrium,which price is not allowed to fall below.
B)maximum price,above equilibrium,which price is not allowed to exceed.
C)minimum price,above equilibrium,which price is not allowed to fall below.
D)maximum price,below equilibrium,which a price is not allowed to exceed.
E)any maximum price which price is not allowed to exceed.

Question 22

If the equilibrium wage in a competitive labour market is $9 per hour,and the government raises the minimum wage from $7 to $8 per hour,what will be the effect in this market?

A)the level of employment will decrease
B)unemployment will increase
C)unemployment will decrease
D)there will be no effect on employment
E)the average wage paid to workers will increase

Question 23

For a legislated minimum wage to be binding in a competitive labour market,it must be set

A)below the free-market wage.
B)equal to the free-market wage.
C)above the free-market wage.
D)at or below the free-market wage.
E)such that no worker can earn more than the established minimum wage.

Question 24

Suppose that the free-market equilibrium price of downtown-to-airport taxi service would be $45 per trip,but in an effort to protect taxi owners the government has fixed the price at $60 per trip.At this legislated price the quantity ________ will be greater than the quantity ________, resulting in a ________ of downtown -to-airport taxi services

A)demanded; supplied; surplus
B)supplied; demanded; surplus
C)demanded; supplied; shortage
D)supplied; demanded; shortage
E)demanded; supplied; reduction in equilibrium price

Question 25

An excess supply of some product is the same thing as

A)a surplus.
B)an excess demand.
C)a shortage.
D)scarcity.
E)price floor.

Question 26

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

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 27

Suppose the free-market equilibrium price for ice time at privately operated hockey arenas is $250 per hour.If the municipal government imposes a price ceiling of $130 per hour,we can expect to see

A)an adjustment of the free-market equilibrium price to $100.
B)an excess supply of ice time.
C)a black market price below the free-market equilibrium price.
D)that neither excess supply nor excess demand is created.
E)an excess demand for ice time.

Question 28

Which of the following is an example of a black-market transaction?

A)A person buys a hotdog on a street corner.
B)A person buys a product at a price greater than the government-imposed ceiling price.
C)A person buys a product at a price below the government-imposed ceiling price.
D)A person places a bet at a racetrack.
E)A person buys a product at a price greater than the government-imposed price floor.

Question 29

An excess demand for some product is the same thing as

A)a surplus.
B)an excess supply.
C)a shortage.
D)black market.
E)price ceiling.

Question 30

In a competitive market,a price ceiling set below the free-market equilibrium price will result in

A)a continuation of the free-market equilibrium price and quantity.
B)the quantity demanded exceeding quantity supplied and thus a shortage in the market.
C)the quantity supplied exceeding quantity demanded and thus a surplus in the market.
D)a new free-market equilibrium at a lower price and higher output level.
E)excess supply.

Question 31

With respect to some commodity,X,if government objectives are to (1)restrict production and (2)keep prices down to protect consumers,then legislated price ceilings will

A)be a dismal failure as neither goal can ever be achieved with price ceilings.
B)satisfy both goals but only if a black market develops.
C)satisfy only the second goal if a black market develops.
D)only have an effect on commodities at the international level.
E)satisfy both goals as long as a black market does not develop.

Question 32

Suppose the government decides to eliminate a binding price ceiling that it had previously imposed on a particular good.It can be expected that

A)the price would increase,quantity demanded would decrease,and quantity supplied would decrease.
B)the price would increase,quantity demanded would decrease,and quantity supplied would increase.
C)the price would decrease,quantity demanded would decrease,and quantity supplied would increase.
D)the price would decrease,quantity demanded would increase,and quantity supplied would decrease.
E)no change would take place

Question 33

Suppose that the free-market equilibrium price of natural gas would be $2.00 per unit,but in an effort to protect consumers the government has fixed the price at $1.50.At this ceiling price the quantity quantity ________ will be greater than the quantity ________, resulting in a ________ of natural gas.

A)demanded; supplied; surplus
B)supplied; demanded; surplus
C)demanded; supplied; shortage
D)supplied; demanded; shortage
E)demanded; supplied; reduction in equilibrium price

Question 34

A binding minimum wage established by the government

A)is essentially a price ceiling that creates a shortage of workers.
B)will be effective only if the minimum wage is set below the free-market equilibrium wage.
C)will have no effect on the quantity of labour employed.
D)will affect adversely only those workers whose value of productivity is greater than this minimum wage.
E)is a price floor that will create a surplus of workers if the labour market is competitive.

Question 35

Which of the following statements best differentiates price ceilings and price floors?

A)Price ceilings represent minimum prices,while price floors represent maximum prices.
B)Binding price ceilings are always set below the equilibrium price,whereas binding price floors are always set above the equilibrium price.
C)Price ceilings are always effective,whereas price floors are rarely effective.
D)Price floors cause shortages to appear,whereas price ceilings have the opposite effect.
E)Price ceilings and price floors have the same effects.

Question 36

Suppose the government decides to eliminate a binding price floor that it had previously imposed on a particular good.It can be expected that

A)the price would increase,the quantity demanded would decrease and the quantity supplied would increase.
B)the price would increase,the quantity demanded would increase and the quantity supplied would decrease.
C)the price would decrease,the quantity demanded would decrease and the quantity supplied would increase.
D)the price would decrease,the quantity demanded would increase and the quantity supplied would decrease.
E)no changes would take place.

Question 37

In a competitive market,a legal price ceiling set above the free-market equilibrium price will result in

A)a continuation of the free-market equilibrium price and quantity.
B)the quantity demanded exceeding quantity supplied and thus a shortage in the market.
C)the quantity supplied exceeding quantity demanded and thus a surplus in the market.
D)a new free-market equilibrium at a higher price and lower output level.
E)increased profits to the firms in the industry.

Question 38

Suppose the government establishes a binding price floor for some product.At the price floor,

A)although sellers are selling all of the product that they desire,consumers are not able to buy all that they desire.
B)a new free-market equilibrium price and quantity will be established.
C)both sellers and buyers are satisfied with the quantity that is being exchanged.
D)both sellers and buyers are exchanging the free-market equilibrium quantity.
E)although consumers are purchasing all of the product they desire at this price,the sellers are not selling all they desire.

Question 39

Which of the following is true of price ceilings?

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.

Question 40

A price ceiling set below the free-market equilibrium price will result in

A)a clearing of the market.
B)greater quantity exchanged.
C)surpluses.
D)excess demand.
E)excess supply.

Question 41

A predictable result of the imposition of binding price floors or price ceilings is

A)shortages.
B)a reduction in quantities exchanged.
C)surpluses.
D)production control by the government.
E)a more equitable distribution of commodities.

Question 42

Suppose the government imposes a price ceiling on rental housing that is below the market-clearing price.The resulting shortage will be

A)greater the more recently the controlled price went into effect.
B)smaller the longer the controlled price has been in effect.
C)greater the more elastic the demand for rental housing.
D)smaller the more elastic the demand for rental housing.
E)diminished over time.

Question 43

The surpluses associated with a binding price floor will be the smallest when

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)both supply and demand are unit elastic.

Question 44

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

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.

Question 45

Assuming that the long-run supply of housing is more ________ than the short-run supply,the imposition of binding rent controls will generally ________.

A)inelastic; lead to a reduction in the housing shortage over time
B)elastic; lead to a worsening of the housing shortage over time
C)inelastic; lead to no significant change in the housing shortage
D)elastic; lead to only a temporary housing shortage
E)elastic; lead the price of rental housing to revert back to its equilibrium level

Question 46

If a binding price ceiling is in place and if the demand curve for the product shifts rightward,one consequence would be

A)the quantity exchanged would increase.
B)the quantity exchanged would remain constant.
C)the quantity exchanged would decrease.
D)an increase in the amount of excess supply.
E)a decrease in the amount of excess demand.

Question 47

If the government imposes a price ceiling for some product,and a black market subsequently develops that gains control of all of the reduced output of the product,then

A)the black market price will be lower than the ceiling price.
B)excess profits will flow back to consumers.
C)the quantity demanded will exceed quantity supplied at the black market price.
D)the black market price will be higher than the free-market equilibrium price.
E)consumers will be better off than they would be in the absence of the black market.

Question 48

The long-run elasticity of supply of rental housing is greater than the short-run elasticity of supply because

A)changes in supply can occur very quickly,especially when rent controls are in place.
B)investment in new rental housing has such a short payback period.
C)changes in supply occur only after investment decisions are made regarding,for example,new construction or conversion of rental housing to other uses.
D)in the long run,landlords have no incentive to alter the supply of rental housing.
E)the demand for rental housing is changing continuously.

Question 49

Suppose a negatively sloped demand curve and a positively sloped supply curve intersect at a price and quantity combination of $100 and 600 units of the good.But suppose that producers actually produce and sell 610 units.What can we correctly say about market efficiency in this case?

A)The value placed on the final 10 units of the good by consumers exceeds the additional costs associated with their production - this market is not efficient.
B)The production and consumption of the additional 10 units of the good increases total economic surplus and increases market efficiency.
C)This market is efficient because economic surplus is maximized as production and consumption increase simultaneously.
D)This market is not efficient because quantity demanded for the good exceeds quantity supplied.
E)The value placed on the final 10 units of the good by consumers is less than the additional costs associated with their production - this market is not efficient.

Question 50

Consider the supply curve for a product such as shipping crates,which shows how many crates producers want to sell at each possible price.Alternatively,we could view this supply curve in the following way:

A)for each quantity of shipping crates,the supply curve shows the economic surplus generated by the provision of that ticket.
B)for each possible price,the supply curve shows the economic surplus generated by the provision of those crates.
C)for each quantity of shipping crates,the supply curve shows the extent of market inefficiency and deadweight loss.
D)for each quantity of shipping crates,the supply curve shows the value that consumers place on that particular crate.
E)for each quantity of shipping crates,the price on the supply curve shows the additional cost to the producer of supplying that crate.

Question 51

Suppose a downward-sloping demand curve intersects the horizontal axis at a point where quantity demanded equals 1250 units.What is the ʺvalueʺ that consumers place on the 1250th unit of this good?

A)a negative value
B)a positive value
C)$0
D)$1250
E)it depends on the position of the supply curve

Question 52

If a binding price floor is in place and if the demand curve for the product shifts rightward,one consequence would be

A)an increase in the amount of excess demand.
B)a decrease in the amount of excess demand.
C)an increase in the amount of excess supply.
D)a decrease in the amount of excess supply.
E)a decrease in the quantity exchanged.

Question 53

If a binding price ceiling is in effect and if the demand for the product increases,one consequence would be

A)a decrease in the amount of excess supply.
B)a decrease in the amount of excess demand.
C)an increase in the amount of excess supply.
D)an increase in the amount of excess demand.
E)no change in the excess supply or demand for the product.

Question 54

The short-run supply for rental housing is quite ________ while the long-run supply for housing is quite________.

A)elastic; inelastic
B)inelastic; elastic
C)flat; steep
D)inelastic; inelastic
E)elastic; elastic

Question 55

Who are likely to be the biggest beneficiaries of rent controls?

A)landlords
B)prospective tenants
C)current tenants
D)construction companies
E)no group will benefit from the controls

Question 56

The use of legislated rent controls typically

A)has no effect on the distribution of income between tenants and landlords or on the availability of rental accommodations.
B)affects the distribution of income between tenants and landlords but does not affect the supply of rental accommodations.
C)has no effect on the distribution of income between tenants and landlords but does affect the supply of rental accommodations.
D)affects the distribution of income between tenants and landlords and also affects the availability of rental accommodations.
E)has much worse effects in the short run than in the long run.

Question 57

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

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 58

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

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 59

Consider the demand curve for a product such as movie tickets,which shows how many tickets consumers wish to purchase at each possible price.Alternatively,we could view this demand curve in the following way:

A)for each quantity of movie tickets,the price on the demand curve shows the value that consumers place on that particular movie ticket.
B)for each quantity of movie tickets,the demand curve shows the economic surplus generated by the purchase of the tickets.
C)for each possible price,the demand curve shows the economic surplus generated by the purchase of the tickets.
D)for each quantity of movie tickets,the demand curve shows the extent of market inefficiency and deadweight loss.
E)for each quantity of movie tickets,the demand curve shows the additional cost to the producer of supplying that particular movie ticket.

Question 60

If the equilibrium price for some product is $1000,a price ceiling of $800 will result in

A)the same general effects as a price ceiling of $1200.
B)the same general effects as a price floor 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 61

Consider the following demand and supply schedules for some agricultural commodity. TABLE 5-2
Refer to Table 5-2.Suppose we begin in a free-market equilibrium.If the government then imposes a production quota of 500 units,total farmersʹ income

A)increases by $800.
B)increases by $500.
C)remains unchanged.
D)decreases by $500.
E)decreases by $700.

Question 62

If 10 000 snow tires are produced and purchased in the month of November,we can say that economic surplus is

A)the net value that society as a whole receives by producing and consuming those 10 000 snow tires.
B)the number of snow tires that are produced in excess of the equilibrium quantity.
C)the profit earned by the producers of those 10 000 snow tires.
D)the price at which the tires are sold multiplied by 10 000.
E)the net value to those consumers who purchased the 10 000 snow tires.

Question 63

Consider the following demand and supply schedules for some agricultural commodity. TABLE 5-2
Refer to Table 5-2.Total farmersʹ revenue under the free-market equilibrium is

A)$3000.
B)$15 000.
C)$35 000.
D)$63 000.
E)$75 000.

Question 64

Consider the following demand and supply schedules for some agricultural commodity. TABLE 5-2
Refer to Table 5-2.Consider the market-clearing equilibrium.If the government then imposes a production quota of 500 units,the deadweight loss that is created is equal to

A)$1000.
B)$2000.
C)$3000.
D)$4000.
E)$5000.

Question 65

Each point on a demand curve shows the ________ price that consumers will pay to consume that quantity. The demand curve therefore shows the ________ to consumers from consuming the product.

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

Question 66

Consider a market that is in equilibrium with a market-clearing price.Economic surplus is shown by

A)the intersection of the supply and demand curves.
B)the area that is both below the demand curve and above the supply curve.
C)the area that is both above the demand curve and below the supply curve.
D)the area to the right of the market-clearing price and quantity.
E)the area below the supply curve up to the equilibrium quantity and below the demand curve beyond the equilibrium quantity.

Question 67

Geoff is willing to pay $13 for a sixth entrance to a mountain bike park.The market price for entrance is $10.50.The bike park is willing to accept $8.75.The total economic surplus generated from Geoffʹs sixth trip to the bike park is

A)$1.75.
B)$2.50.
C)$13.00.
D)$10.50.
E)$4.25.

Question 68

Suppose a binding output quota is imposed in a previously competitive market with free-market equilibrium price and quantity.The result is

A)higher price and higher quantity exchanged.
B)higher price and lower quantity exchanged.
C)lower price and lower quantity exchanged.
D)lower price and higher quantity exchanged.
E)no change in price or quantity exchanged.

Question 69

The diagram below shows the market for litres of milk.
FIGURE 5-8
Refer to Figure 5-8.After the imposition of a milk quota at quantity Q1,economic surplus is represented by

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

Question 70

Consider the following demand and supply schedules for some agricultural commodity. TABLE 5-2
Refer to Table 5-2.Consider the market-clearing equilibrium.If the government then imposes a production quota of 500 units,the price of this commodity will ________ relative to the free -market equilibrium price.

A)remain unchanged
B)rise by $20
C)fall by $20
D)rise by $40
E)fall by $40

Question 71

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.

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

Question 72

The diagram below shows the market for litres of milk.
FIGURE 5-8
Refer to Figure 5-8.Suppose that a binding output quota is imposed on this market at quantity Q 1.The loss in economic surplus due to the quota is equal to

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

Question 73

The diagram below shows the market for litres of milk.
FIGURE 5-8
Refer to Figure 5-8.After the imposition of a milk quota at quantity Q1,the deadweight loss in this market is represented by

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

Question 74

Consider a competitive market for good X.A binding price floor and a binding price ceiling in this market would be similar to each other in that

A)each type of price control will lead to a reduction in deadweight loss and therefore an increase in efficiency in the market for good X.
B)the units of good X that will no longer be produced or consumed will not generate any economic surplus.
C)each type of price control results in a higher price paid by consumers,and therefore to a reduction in economic surplus.
D)each type of price control results in a lower price received by sellers,and therefore to a reduction in economic surplus.
E)additional units of good X will be produced and consumed,leading to an increase in economic surplus.

Question 75

Which of the following statements most accurately describes the concept of deadweight loss?

A)the loss of production that occurs when a binding price floor or ceiling is imposed
B)the loss of consumption that occurs when a binding price floor or ceiling is imposed
C)the overall loss of economic surplus that occurs when a market is inefficient
D)the total market value of the goods no longer produced when quantity exchanged is below the equilibrium quantity
E)the loss of economic surplus to consumers

Question 76

One measure of the extent of market inefficiency is

A)how far market price deviates from equilibrium.
B)how far quantity exchanged deviates from equilibrium.
C)the size of the economic surplus.
D)the size of the deadweight loss.
E)the difference between total economic surplus and deadweight loss.

Question 77

In general (and in the absence of market failures),economic surplus will be maximized and economic efficiency will be achieved

A)when the government is able to impose an equilibrium price.
B)when consumers and producers can agree on the most advantageous division of economic surplus.
C)when resources are allocated such that production of the good is maximized.
D)when the government successfully determines what is best for society as a whole.
E)in a competitive market where price is free to achieve its market-clearing equilibrium level.

Question 78

Consider the following demand and supply schedules for some agricultural commodity. TABLE 5-2
Refer to Table 5-2.Consider the market-clearing equilibrium.If the government then required that production increase to 900 units,the deadweight loss that is created is equal to

A)$1000.
B)$2000.
C)$3000.
D)$4000.
E)$5000.

Question 79

Consider Canadaʹs east coast lobster fishery.Suppose the government sets a production quota which is below the equilibrium quantity.Relative to the free-market equilibrium,we can expect the result to be

A)an increase in price and a decrease in deadweight loss.
B)a decrease in price and a decrease in deadweight loss.
C)the free-market equilibrium price and quantity because the quota is not binding.
D)an increase in price and the introduction of a deadweight loss.
E)a decreased price.

Question 80

When economists describe a market for a specific product as being economically ʺefficient,ʺ what do they mean?

A)Production techniques are such that resources are used in the most technologically efficient manner.
B)Consumption of the product is such that economic surplus is maximized.
C)Production of the product is such that economic surplus is maximized.
D)The quantity of the product produced and consumed is such that the economic surplus is maximized.
E)There are no price controls in place in that market.