Deck 5: Markets in Action

Question 1

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

A) a new free- market equilibrium at a lower price and higher output level.
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) excess supply.
E) a continuation of the free- market equilibrium price and quantity.

Answer 1

B

Question 2

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 price floor.
C) A person buys a product at a price greater than the ceiling price.
D) A person places a bet at a racetrack.
E) A person buys a product at a price below the ceiling price.

Answer 2

C

Question 3

Suppose the demand for eggs is inelastic and that the market- clearing price is $1.50 per dozen. Now suppose the government imposes a minimum price of $2.00 per dozen. Why might the government implement such a policy?

A) to reduce excess supply in the egg market.
B) to make consumers better off.
C) to increase the incomes of egg farmers.
D) to decrease tax revenues from egg farmers.
E) to increase excess demand in the egg market.

Answer 3

C

Question 4

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

Question 5

If an economist is conducting a partial- equilibrium analysis of the market for commuter jets, then he or she is

A) assuming that changes in the prices of substitute goods will not affect the market for commuter jets.
B) assuming that the prices of all other goods are constant.
C) conducting an irresponsible analysis.
D) making an equivalent analysis to a general- equilibrium analysis, but for one market only.
E) accounting for the effects of changes in jet fuel prices in the market for commuter jets.

Question 6

Government price controls

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

Question 7

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

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

Question 8

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

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

Question 9

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

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

Question 10

A binding minimum wage established by the government

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

Question 11

An excess demand for some product is the same thing as

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

Question 12

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

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

Question 13

Consider the following demand and supply schedules for some agricultural commodity. $$\begin{array}{l}\begin{array} { | l | l | l | } \hline \text { Price } & \begin{array} { l } \text { Quantity } \\\text { Supplied }\end{array} & \begin{array} { l } \text { Quantity } \\\text { Demanded }\end{array} \\\hline \$ 10 & 300 & 1100 \\\hline \$ 30 & 500 & 900 \\\hline \$ 50 & 700 & 700 \\\hline \$ 70 & 900 & 500 \\\hline \$ 90 & 1100 & 300 \\\hline \$ 110 & 1300 & 100 \\\hline\end{array}\\\text { TABLE 5- } 2\end{array}$$

-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 farmers' income

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

Question 14

Consider the following demand and supply schedules for some agricultural commodity. $$\begin{array}{l}\begin{array} { | l | l | l | } \hline \text { Price } & \begin{array} { l } \text { Quantity } \\\text { Supplied }\end{array} & \begin{array} { l } \text { Quantity } \\\text { Demanded }\end{array} \\\hline \$ 10 & 300 & 1100 \\\hline \$ 30 & 500 & 900 \\\hline \$ 50 & 700 & 700 \\\hline \$ 70 & 900 & 500 \\\hline \$ 90 & 1100 & 300 \\\hline \$ 110 & 1300 & 100 \\\hline\end{array}\\\text { TABLE 5- } 2\end{array}$$

-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) $1 000.
B) $5 000.
C) $3 000.
D) $4 000.
E) $2 000.

Question 15

Consider the following demand and supply schedules for some agricultural commodity. $$\begin{array}{l}\begin{array} { | l | l | l | } \hline \text { Price } & \begin{array} { l } \text { Quantity } \\\text { Supplied }\end{array} & \begin{array} { l } \text { Quantity } \\\text { Demanded }\end{array} \\\hline \$ 10 & 300 & 1100 \\\hline \$ 30 & 500 & 900 \\\hline \$ 50 & 700 & 700 \\\hline \$ 70 & 900 & 500 \\\hline \$ 90 & 1100 & 300 \\\hline \$ 110 & 1300 & 100 \\\hline\end{array}\\\text { TABLE 5- } 2\end{array}$$

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

Question 16

FIGURE 5- 1
Refer to Figure 5- 1. If the diagram applies to the labour market, and P3 represents a legislated minimum wage,

A) the labour market is in disequilibrium.
B) the amount of labour employed will rise from quantity F to quantity C.
C) there will be excess demand of AC in the labour market.
D) there will be unemployment of AC in the labour market.
E) the free- market equilibrium wage is P0 and the labour market is unaffected by the minimum wage.

Question 17

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 .

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

Question 18

An excess supply of some product is the same thing as

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

Question 19

$\text { Demand and Supply Schedules for Chocolate Bars }$
$\begin{array}{|c|c|c|}\hline \begin{array}{c}\text { Price } \\(\$)\end{array} & \begin{array}{c}\text { Quantity Demanded } \\\text { (thousandsperweek) }\end{array} & \begin{array}{c}\text { Quantity Supplied } \\\text { (thousands per week) }\end{array} \\\hline 2.00 & 1500 & 2100 \\\hline 1.80 & 1600 & 2050 \\\hline 1.60 & 1700 & 2000 \\\hline 1.40 & 1800 & 1950 \\\hline 1.20 & 1900 & 1900 \\\hline 1.00 & 2000 & 1850 \\\hline 0.80 & 2100 & 1800 \\\hline 0.60 & 2200 & 1750 \\\hline 0.40 & 2300 & 1700 \\\hline\end{array}$
$\text { TABLE 5-1 }$

-Refer to Table 5- 1. Suppose the government imposed a price of $1.80 per chocolate bar. A likely result from this policy is

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

Question 20

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

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

Question 21

$\text { Demand and Supply Schedules for Chocolate Bars }$
$\begin{array}{|c|c|c|}\hline \begin{array}{c}\text { Price } \\(\$)\end{array} & \begin{array}{c}\text { Quantity Demanded } \\\text { (thousandsperweek) }\end{array} & \begin{array}{c}\text { Quantity Supplied } \\\text { (thousands per week) }\end{array} \\\hline 2.00 & 1500 & 2100 \\\hline 1.80 & 1600 & 2050 \\\hline 1.60 & 1700 & 2000 \\\hline 1.40 & 1800 & 1950 \\\hline 1.20 & 1900 & 1900 \\\hline 1.00 & 2000 & 1850 \\\hline 0.80 & 2100 & 1800 \\\hline 0.60 & 2200 & 1750 \\\hline 0.40 & 2300 & 1700 \\\hline\end{array}$
$\text { TABLE 5-1 }$

-Refer to Table 5- 1. Suppose that as a public- health measure the government wants to reduce the number of chocolate bars that children consume. To achieve this outcome the government could implement which of the following policies?

A) Impose an equilibrium price of $1.20.
B) Impose a price ceiling of $2.00.
C) Impose a price floor of $1.80.
D) Impose an equilibrium price of $1.80.
E) Impose a price ceiling of $1.80.

Question 22

FIGURE 5- 2
Refer to Figure 5- 2. A price ceiling set at a price of $2.50 per unit will result in

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

Question 23

FIGURE 5- 3
Refer to Figure 5- 3. P3 represents a price imposed by the government. The result would be

A) excess supply of Q3Q0.
B) excess demand of Q1Q2.
C) excess supply of Q3Q4.
D) excess demand of Q0Q2.
E) excess demand of Q3Q4.

Question 24

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

Question 25

FIGURE 5- 3
Refer to Figure 5- 3. To be effective, a price floor must lie

A) within the boundaries of P2 and P3.
B) above P1 but below P2.
C) anywhere below P1.
D) below P1 but above P3.
E) anywhere above P1.

Question 26

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

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

Question 27

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

Question 28

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

Question 29

$\text { Demand and Supply Schedules for Chocolate Bars }$
$\begin{array}{|c|c|c|}\hline \begin{array}{c}\text { Price } \\(\$)\end{array} & \begin{array}{c}\text { Quantity Demanded } \\\text { (thousandsperweek) }\end{array} & \begin{array}{c}\text { Quantity Supplied } \\\text { (thousands per week) }\end{array} \\\hline 2.00 & 1500 & 2100 \\\hline 1.80 & 1600 & 2050 \\\hline 1.60 & 1700 & 2000 \\\hline 1.40 & 1800 & 1950 \\\hline 1.20 & 1900 & 1900 \\\hline 1.00 & 2000 & 1850 \\\hline 0.80 & 2100 & 1800 \\\hline 0.60 & 2200 & 1750 \\\hline 0.40 & 2300 & 1700 \\\hline\end{array}$
$\text { TABLE 5-1 }$

-Refer to Table 5- 1. Suppose that as a public health measure the government wants to reduce the number of chocolate bars consumed by children. If the government imposes a price of $1.60 per chocolate bar, how many fewer chocolate bars will be consumed each week, relative to the competitive equilibrium?

A) 200
B) 300
C) 1800
D) 1700
E) 2000

Question 30

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

A) supply is highly elastic and demand is highly inelastic.
B) both supply and demand are unit elastic.
C) both supply and demand are highly inelastic.
D) both supply and demand are highly elastic.
E) supply is highly inelastic and demand is highly elastic.

Question 31

FIGURE 5- 2
Refer to Figure 5- 2. A price floor set at a price of $1.00 will result in

A) a shortage of 20 units.
B) a shortage of 10 units.
C) a surplus of 20 units.
D) a surplus of 10 units
E) no change in the market outcomes.

Question 32

In practice, legislated rent controls are usually intended

A) to increase the demand for rental housing and to discourage private ownership of low- cost rental housing developments.
B) to stimulate employment in the construction industry through the increased demand for new houses.
C) to prevent landlords from making excess profits and to protect low- income tenants from increases in the cost of housing.
D) to stabilize volatile rents, and thus to make the investment climate less uncertain for prospective investors in this sector.
E) to prevent landlords from making excess profits and to reduce the long- term quantity of rental housing.

Question 33

The diagram below shows the market for apartments in a city. Assume that all apartments are identical. FIGURE 5- 4
Refer to Figure 5- 4. Suppose the government imposes a rent- controlled price of $600 per month on apartments in this city. In the short run we can expect the shortage of apartments to be units.

A) 300
B) 200
C) 1000
D) 0
E) 800

Question 34

The diagram below shows the market for apartments in a city. Assume that all apartments are identical. FIGURE 5- 4
Refer to Figure 5- 4. Suppose the government imposes a rent- controlled price of $600 per month on apartments in this city. In the long run we can expect the shortage of apartments to be _ units.

A) 300
B) 800
C) 1000
D) 0
E) 200

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 and price floors have the same effects.
D) Price floors cause shortages to appear, whereas price ceilings have the opposite effect.
E) Price ceilings are always effective, whereas price floors are rarely effective.

Question 36

A legally imposed upper limit on a price is called

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

Question 37

FIGURE 5- 1
Refer to Figure 5- 1. If the diagram applies to the market for rental housing and P3 represents the maximum rent that can be charged, then

A) units supplied will be reduced relative to the competitive equilibrium by AF rental units.
B) there will be an excess supply of rental units equal to BD.
C) there will be excess demand for rental units equal to FC.
D) there will be excess demand for rental units equal to AF.
E) windfall profits will be earned by landlords.

Question 38

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

Question 39

A binding price floor is a

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

Question 40

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

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

Question 41

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

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

Question 42

Output quotas are commonly used in markets for

A) agricultural products.
B) textiles.
C) financial products.
D) imported goods.
E) exported goods.

Question 43

Government price controls are policies that attempt to maintain the

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

Question 44

If the government imposes an administered price in the market for gold that results in excess supply,

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

Question 45

Consider the following demand and supply schedules for some agricultural commodity. $$\begin{array}{l}\begin{array} { | l | l | l | } \hline \text { Price } & \begin{array} { l } \text { Quantity } \\\text { Supplied }\end{array} & \begin{array} { l } \text { Quantity } \\\text { Demanded }\end{array} \\\hline \$ 10 & 300 & 1100 \\\hline \$ 30 & 500 & 900 \\\hline \$ 50 & 700 & 700 \\\hline \$ 70 & 900 & 500 \\\hline \$ 90 & 1100 & 300 \\\hline \$ 110 & 1300 & 100 \\\hline\end{array}\\\text { TABLE 5- } 2\end{array}$$

-Refer to Table 5- 2. Total farmers' income under the free- market equilibrium is

A) $3 000.
B) $15 000.
C) $63 000.
D) $75 000.
E) $35 000.

Question 46

The diagram below shows the market for apartments in a city. Assume that all apartments are identical. 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

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 a short- run supply curve and S2 is a long- run supply curve.
D) S1 is a long- run supply curve and S2 is a short- run supply curve.
E) S1 is more elastic than S2.

Question 47

Consider the market for any agricultural commodity for which there exists a binding output quota and demand is inelastic. Any individual producer has a clear financial incentive to

A) limit production of the commodity.
B) produce beyond the individual quota amount.
C) leave the market.
D) stop producing.
E) give away their quota.

Question 48

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

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

Question 49

FIGURE 5- 3
Refer to Figure 5- 3. P2 represents a price imposed by the government. What is the quantity of this good that would be exchanged in the market?

A) Q4
B) Q0
C) Q1
D) Q2
E) Q3

Question 50

A legal price floor is a

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

Question 51

$\text { Demand and Supply Schedules for Chocolate Bars }$
$\begin{array}{|c|c|c|}\hline \begin{array}{c}\text { Price } \\(\$)\end{array} & \begin{array}{c}\text { Quantity Demanded } \\\text { (thousandsperweek) }\end{array} & \begin{array}{c}\text { Quantity Supplied } \\\text { (thousands per week) }\end{array} \\\hline 2.00 & 1500 & 2100 \\\hline 1.80 & 1600 & 2050 \\\hline 1.60 & 1700 & 2000 \\\hline 1.40 & 1800 & 1950 \\\hline 1.20 & 1900 & 1900 \\\hline 1.00 & 2000 & 1850 \\\hline 0.80 & 2100 & 1800 \\\hline 0.60 & 2200 & 1750 \\\hline 0.40 & 2300 & 1700 \\\hline\end{array}$
$\text { TABLE 5-1 }$

-Refer to Table 5- 1. Suppose the government imposed a price of $0.60 per chocolate bar. The result would be

A) excess supply of 1750 chocolate bars per week.
B) stockpiling of unsold chocolate bars.
C) excess supply of 450 chocolate bars per week.
D) excess demand of 2200 chocolate bars per week.
E) excess demand of 450 chocolate bars per week.

Question 52

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

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

Question 53

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 Geoff's sixth trip to the bike park is

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

Question 54

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

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

Question 55

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

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

Question 56

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

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

Question 57

Consider the following demand and supply schedules for some agricultural commodity. $$\begin{array}{l}\begin{array} { | l | l | l | } \hline \text { Price } & \begin{array} { l } \text { Quantity } \\\text { Supplied }\end{array} & \begin{array} { l } \text { Quantity } \\\text { Demanded }\end{array} \\\hline \$ 10 & 300 & 1100 \\\hline \$ 30 & 500 & 900 \\\hline \$ 50 & 700 & 700 \\\hline \$ 70 & 900 & 500 \\\hline \$ 90 & 1100 & 300 \\\hline \$ 110 & 1300 & 100 \\\hline\end{array}\\\text { TABLE 5- } 2\end{array}$$

-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) $1 000.
B) $4 000.
C) $3 000.
D) $2 000.
E) $5 000.

Question 58

FIGURE 5- 1
Refer to Figure 5- 1. With a price ceiling of P3, how large will the resulting shortage be?

A) AF
B) FC
C) FD
D) AC
E) BC

Question 59

Consider the market for any agricultural commodity for which there exists a binding output quota and demand is inelastic. One outcome of this situation is that

A) the price and quantity adjust back to the free- market equilibrium levels.
B) producers who were in this industry before the introduction of the quota are harmed.
C) it is difficult for new producers to enter this industry because the quotas are very expensive.
D) producers leave this industry because total revenues fall as a result of the the quota.
E) producers who enter this industry after the introduction of the quota benefit.

Question 60

If government establishes a ceiling on the price of rental accommodation lower than the free- market equilibrium price, then

A) the rental housing market will be unaffected.
B) construction of new rental units will be encouraged.
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 61

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 purchased, the economic surplus is

A) the sum of the areas below the demand curve, up to 400 hours - i.e., areas 1, 2, 3, 4, 5, 6, 7, 8.
B) the sum of the areas below the demand curve - i.e., areas 1, 2, 3, 4, 5, 6, 7, 8, 9.
C) the sum of the areas below the demand curve, but above the market- clearing price of $30 - i.e., areas 1, 2, 6.
D) the sum of the areas above the supply curve, but below the market- clearing price of $30 - i.e., areas 3, 4, 7.
E) the sum of the areas above the supply curve and below the demand curve - i.e., areas 1, 2, 3, 4, 6, 7.

Question 62

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

Question 63

General- equilibrium analysis considers

A) how government planning can improve upon the results of the free- market system.
B) all markets simultaneously, recognizing the interactions among the various markets.
C) the existence of a general market equilibrium as if no specific markets existed.
D) the linkages between markets specifically.
E) a specific market while ignoring any feedback effects that may come from induced changes in other markets.

Question 64

In free and competitive markets, shortages are eliminated by

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

Question 65

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

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

Question 66

FIGURE 5- 1
Refer to Figure 5- 1. If the government imposes an administered price at P2, the result will be a

A) shortage of AC
B) shortage of FD
C) surplus of BD
D) surplus of AF
E) surplus of 0D

Question 67

FIGURE 5- 2
Refer to Figure 5- 2. A price ceiling set at a price of $1.00 per unit will result in

A) a surplus of 10 units
B) a surplus of 20 units.
C) a shortage of 10 units.
D) a shortage of 20 units.
E) no change to the market outcomes.

Question 68

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

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

Question 69

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 Q1. The loss in economic surplus due to the quota is equal to

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

Question 70

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

Question 71

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

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

Question 72

$\text { Demand and Supply Schedules for Chocolate Bars }$
$\begin{array}{|c|c|c|}\hline \begin{array}{c}\text { Price } \\(\$)\end{array} & \begin{array}{c}\text { Quantity Demanded } \\\text { (thousandsperweek) }\end{array} & \begin{array}{c}\text { Quantity Supplied } \\\text { (thousands per week) }\end{array} \\\hline 2.00 & 1500 & 2100 \\\hline 1.80 & 1600 & 2050 \\\hline 1.60 & 1700 & 2000 \\\hline 1.40 & 1800 & 1950 \\\hline 1.20 & 1900 & 1900 \\\hline 1.00 & 2000 & 1850 \\\hline 0.80 & 2100 & 1800 \\\hline 0.60 & 2200 & 1750 \\\hline 0.40 & 2300 & 1700 \\\hline\end{array}$
$\text { TABLE 5-1 }$

-Refer to Table 5- 1. Suppose the government established a price floor of $1.00 per chocolate bar. How many thousands of chocolate bars would be exchanged per week?

A) 1800
B) 1850
C) 2100
D) 1900
E) 2000

Question 73

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

Question 74

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

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

Question 75

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 .

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

Question 76

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

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

Question 77

Partial- equilibrium analysis considers

A) all markets simultaneously, recognizing the interactions among the various markets.
B) a specific market while ignoring any feedback effects that may come from induced changes in other markets.
C) how government planning can improve upon the results of a free market.
D) only the existence of a market equilibrium, as if no other markets exist.
E) the linkages between markets specifically.

Question 78

The diagram below shows the market for apartments in a city. Assume that all apartments are identical. FIGURE 5- 4
Refer to Figure 5- 4. Suppose the government sets a rent ceiling at Price B, $900. In this situation, if all apartments are rented on the black market, then the rent for an apartment is

A) any rent above $900.
B) any rent below $600.
C) $900.
D) $600.
E) the same as the free- market equilibrium rental price.

Question 79

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

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

Question 80

Which of the following is true of price ceilings?

A) Firms must charge the price established as a price ceiling.
B) A ceiling price below the free- market equilibrium price is not binding.
C) If the ceiling price is set above the free- market equilibrium price it will have no effect on the market.
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.