Deck 5: Price Controls and Quotas: Meddling With Markets

Question 1

Rapidly increasing health costs have been a major political concern since at least 1992.Suppose the government sets the maximum price for a normal doctor's visit at $20 to control rising health costs but the current market price is $40.What will happen?
A.More people will try to visit the doctor, but there will be fewer doctors willing to see patients at that price.
B.The same number of people will try to visit the doctor, and the same number of doctors are willing to see patients at that price.
C.More people will be able to see the doctor, since the price is lower.
D.Fewer people will try to see the doctor, and fewer doctors are willing to see patients at that price.

Answer 1

More people will try to visit the doctor, but there will be fewer doctors willing to see patients at that price.

Question 2

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

Answer 2

a shortage of the good.

Question 3

The government decides to impose a price ceiling on a good because it thinks the market- determined price is "too high." If the government imposes the price ceiling below the equilibrium price:
A.consumers will respond to the lower price and wish to purchase more of the good than at the equilibrium price.
B.producers will respond to the lower price and offer more units for sale.
C.consumers will be able to purchase more of the good after the price ceiling is imposed.
D.it will not be binding.

Answer 3

consumers will respond to the lower price and wish to purchase more of the good than at the equilibrium price.

Question 4

If the government feels that a price in the market is too high for , it can impose a
________.
A.consumers; price ceiling
B.consumers; price floor
C.producers; price ceiling
D.producers; price floor

Question 5

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

Question 6

A binding price ceiling is designed to:
A.keep prices low.
B.increase the quality of the good.
C.prevent shortages.
D.increase efficiency.

Question 7

Table: Market for Apartments
(Table: Market for Apartments) Look at the table Market for Apartments.If a government price ceiling of $700 is imposed on this market, an inefficiency will result in the form of a:
A.surplus of 0.6 million apartments.
B.shortage of 0.6 million apartments.
C.surplus of 0.2 million apartments.
D.shortage of 0.2 million apartments.

Question 8

The NFL wants to give the "common fan" the opportunity to attend the Super Bowl, so it sets Super Bowl prices "low"-tickets for a regular seat at Super Bowl XXXVII cost just $400.Scalpers, however, sell tickets for $1,500 or more.If there are no transaction costs to selling a ticket, the true cost of a regular ticket to Super Bowl XXXVII is:
A.at most $400.
B.at least $1,500.
C.the monetary price paid to obtain the ticket.
D.$1,100 less than the opportunity cost of a ticket.

Question 9

A price ceiling will have no effect if:
A.it is set above the equilibrium price.
B.the equilibrium price is above the price ceiling.
C.it is set below the equilibrium price.
D.it creates a shortage.

Question 10

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

Question 11

(Table: The Market for Soda) Look at the table The Market for Soda.If the government imposes a price ceiling of $0.50 per can of soda, there will be:
A.a shortage of 2 cans.
B.a shortage of 3 cans.
C.a surplus of 3 cans.
D.equilibrium in the market for soda.

Question 12

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

Question 13

Table: Market for Apartments
(Table: Market for Apartments) Look at the table Market for Apartments.If a government price ceiling of $600 is imposed on this market, an inefficiency will result in the form of a:
A.surplus of 0.6 million apartments.
B.surplus of 0.8 million apartments.
C.shortage of 0.8 million apartments.
D.shortage of 0.6 million apartments.

Question 14

(Table: The Market for Soda) Look at the table The Market for Soda.If the government does not impose a price control, the price of a can of soda will equal:
A.$0.50.
B.$0.75.
C.$1.00.
D.$1.25.

Question 15

(Table: The Market for Soda) Look at the table The Market for Soda.If the government imposes a price ceiling of $1.00 per can of soda, the quantity of soda demanded will be:
A.10 cans.
B.8 cans.
C.6 cans.
D.4 cans.

Question 16

(Table: The Market for Soda) Look at the table The Market for Soda.If the government imposes a price ceiling of $0.50 per can of soda, the quantity of soda demanded will be:
A.10 cans.
B.8 cans.
C.6 cans.
D.4 cans.

Question 17

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

A)cans. 8
B)cans.
9
C)cans. 10
D)cans.

Question 18

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

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 19

Table: Market for Apartments
(Table: Market for Apartments) Look at the table Market for Apartments.If a government price ceiling of $900 is imposed on this market, an inefficiency will result in the form of a:
A.surplus of 0.6 million apartments.
B.shortage of 0.6 million apartments.
C.surplus of 0.2 million apartments.
D.shortage of 0.2 million apartments.

Question 20

A price control is:
A.when a firm controls the price of the good it produces.
B.a legal restriction on how high or low a price in a market may go.
C.an upper limit on the quantity of some good that can be bought or sold.
D.a tax placed on the sale of a good which controls the market price.

Question 21

If the government sets out to help low-income people by establishing a maximum amount that can be paid for rent:
A.a price floor has been set and a shortage of rental units may occur.
B.a price ceiling has been set and a shortage of rental units may occur.
C.in the long run more rental units will appear.
D.the quality of rental units will be inefficiently high.

Question 22

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

Question 23

A maximum price legislated by the government is called:

A)a price support.
B)a price floor.
C)a price ceiling.
D)the parity price.

Question 24

The government decides to impose a price ceiling on a good because it thinks the market- determined price is "too high." If it imposes the price ceiling above the equilibrium price:
A.consumers will respond to the higher price and therefore wish to purchase less of the good than at the equilibrium price.
B.producers will respond to the higher price and therefore offer fewer units for sale.
C.consumers will purchase less of the good after the price ceiling is imposed.
D.neither producers nor consumers will change their behavior.

Question 25

When price controls take the form of maximum prices set below the equilibrium price, they are:
A.illegal.
B.equal to the demand price.
C.price floors.
D.price ceilings.

Question 26

A price ceiling is:
A.a maximum price sellers are allowed to charge for a good or service.
B.the difference between the quantity supplied and quantity demanded.
C.a minimum price buyers are required to pay for a good or service.
D.the deadweight loss caused by an inefficiently low quantity.

Question 27

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

Question 28

The dictator of a small country restricts the price of cars to an amount less than or equivalent to $1,200 (a price below the equilibrium price for cars).Such a policy would be an example of a:
A.price floor.
B.price ceiling.
C.quota.
D.tariff.

Question 29

To be binding, a price ceiling must be set at a price:
A.lower than the equilibrium price.
B.higher than the equilibrium price.
C.the same as the equilibrium price.
D.any price ceiling is binding.

Question 30

Figure: The Market for Economics Textbooks
(Figure: The Market for Economics Textbooks) Look at the figure The Market for Economics Textbooks.Suppose the government believes textbooks are too expensive and it wants to
make sure textbooks are affordable to more students.This type of price control is called a
________ and one possible price binding price control would be _.
A.price floor; $100
B.price floor; $40
C.price ceiling; $40
D.price ceiling; $100

Question 31

A price ceiling is not effective if:
A.it is set above the equilibrium price.
B.the equilibrium price is above the price ceiling.
C.it is set below the equilibrium price.
D.it creates a shortage.

Question 32

A student organization is formed on your college campus to protest against the high rent prices for apartments near campus.This organization is planning a meeting with the dean and president of the college.Which of the following best describes the policy the student organization will fight for?
A.a laissez faire policy
B.a price floor
C.a price ceiling
D.a quantity control

Question 33

Hugo Chávez is the president of Venezuela.Venezuela is a major producer of oil products, which remain the keystone of Venezuela's economy.Suppose President Chávez wants to increase his popularity with the citizens of Venezuela and enacts a government policy that reduces the customer price of gasoline sold at state-owned gas stations to 50% of the previous price.This policy is called a:
A.price control.
B.price floor.
C.price ceiling.
D.quota.

Question 34

A persistent shortage may occur if:
A.the government imposes a price ceiling.
B.the government imposes a price floor.
C.demand keeps falling.
D.supply shifts rightward.

Question 35

Hugo Chávez is the president of Venezuela.Venezuela is a major producer of oil products, which remain the keystone of Venezuela's economy.Suppose President Chávez enacts a government policy that reduces the customer price of gasoline sold at state-owned gas stations to 50% of the previous price.In theory, this policy will result in the quantity of gasoline demanded to be the quantity of gasoline supplied.
A.equal to
B.greater than
C.less than
D.greater than or equal to

Question 36

(Table: Market for Butter) Look at the table Market for Butter.If the government imposes a price ceiling of $0.90 per pound of butter, the quantity of butter actually purchased will be:
A.10.5 million pounds.
B.9.0 million pounds.
C.1.5 million pounds.
D.10.0 million pounds.

Question 37

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

A)quantity supplied exceeds the quantity demanded.
B)quantity demanded exceeds the quantity supplied.
C)a surplus of rental units will result.
D)all low-income recipients will clearly be helped.

Question 38

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

Question 39

Figure: Price Control
(Figure: Price Control) Look at the figure Price Control.In the graph, one effective price ceiling would be the price indicated at point________ and a would exist equal to the
difference between points _.
A.b; surplus; f and e
B.b; shortage; f and e
C.d; shortage; i and h
D.d; surplus; e and h

Question 40

Figure: The Market for Economics Textbooks
(Figure: The Market for Economics Textbooks) Look at the figure The Market for Economics Textbooks.At a price ceiling of $40 in the market, the market outcome would be:
A.a surplus of 30 textbooks.
B.a surplus of 10 textbooks.
C.a shortage of 30 textbooks.
D.a shortage of 10 textbooks.

Question 41

In a black market, goods or services are bought and sold:
A.at night.
B.without any information about quality.
C.without any information about price.
D.illegally.

Question 42

When a tenant in a rent-controlled apartment sublets the apartment to another renter at a rent higher than the price ceiling:
A.it is inefficient.
B.we say that the transaction takes place on a black market.
C.there is an increase in quantity demanded.
D.there is a decrease in quantity demanded.

Question 43

Producers may supply an inefficiently low quality of a good if the government imposes:

A)a price control.
B)an excise tax.
C)a binding price floor.
D)a binding price ceiling.

Question 44

Figure: Rent Controls
(Figure: Rent Controls) Look at the figure Rent Controls.If rent controls are set at Rent0, renters would be willing to pay a price at least as high as _.
A.Rent4 for Q0 units
B.Rent4 for Q₁ units
C.Rent3 for Q₁ units
D.No one would be willing to pay a higher actual price than Rent0.

Question 45

Governments continue to impose price controls.Which of the following is not a valid reason for this?
A.Some people do benefit from such price controls.
B.People fear that prices will change dramatically if the price controls were removed.
C.It is politically expedient to enact regulations that benefit influential voting groups.
D.Price controls are always effective.

Question 46

Rent controls in New York City cause all of the following except:
A.inefficiently low quality.
B.wasted resources resulting from the opportunity cost of time associated with trying to find an apartment.
C.black markets.
D.an increase in the quantity supplied of rent-controlled apartments.

Question 47

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

Question 48

One of the ways rent control is inefficient is that it leads to:

A)higher-quality apartments.
B)high opportunity costs associated with wasted time searching for apartments.
C)markets that maximize total surplus.
D)the construction of more apartments.

Question 49

Figure: Supply and Demand
(Figure: Supply and Demand) Look at the figure Supply and Demand.In the market shown in the figure, a price ceiling of P₁ causes:
A.a shortage equal to the distance AB.
B.a surplus equal to the distance AB.
C.a shortage equal to the distance DE.
D.no change to the market.

Question 50

Which of the following is an example of a black market?
A.a tenant in a rent-controlled apartment subletting at a higher rent
B.the purchase of an inferior radio at a department store
C.waiting in line during the gasoline shortages of the 1970s
D.the oil market

Question 51

If the government imposes rent control and it is binding:

A)rent will be set above the equilibrium price.
B)it may result in some landlords leaving the business because they cannot cover costs.
C)it will lead to rental units being higher in quality because landlords are guaranteed a high price.
D)it will create a surplus of housing.

Question 52

Suppose the government of the oil-rich country Saudi Arabia sets gasoline prices at $0.25 per gallon when the market price is $1.50.The Saudi government's actions will:
A.improve efficiency, since the low prices will force producers to find cheaper production methods.
B.result in gasoline surpluses even in an oil-rich country.
C.cause gasoline shortages even in an oil-rich country.
D.improve equality between rich and poor, since the poor can now afford gasoline.

Question 53

Each of the following is a source of inefficiency from a rent-control price ceiling except:
A.inefficiently low quantity of the good exchanged.
B.wasted resources of consumers searching for the good.
C.inefficient allocation of the good to consumers.
D.inefficiently high quality of the good being sold.

Question 54

Price ceilings that lead to shortages will impose costs on society because they:

A)will eliminate long waiting lines.
B)may result in black market prices, which are lower than the market-determined price would be.
C)lead to a smaller quantity offered on the market.
D)help businesses instead of consumers.

Question 55

Economists in general agree that rent controls are:
A.an efficient and equitable way to help low-income families.
B.an inefficient but sometimes effective way to help low-income families.
C.an efficient method of dealing with the shortages created during price ceilings.
D.the only way to solve the problem of poverty.

Question 56

The Atlanta Symphony wants to make sure that its concerts are affordable for all residents of Atlanta and therefore prices all its tickets at $25 each.However, outside Symphony Hall, people can sell the same tickets for $75 or more.The true cost to the concertgoer of a ticket to the symphony is at least:
A.$25.
B.$50.
C.$75.
D.$100.

Question 57

Price controls encourage black markets because:

A)they eliminate opportunity costs.
B)individuals can profit by illegal exchanges.
C)they create too much efficiency.
D)they create too much equity.

Question 58

Black markets may develop with price controls because:

A)price controls increase efficiency.
B)quantity demanded equals quantity supplied at the mandated price.
C)individuals cannot profit by illegal exchanges.
D)individuals can profit by illegal exchanges.

Question 59

A price ceiling is likely to result in:
A.a persistent surplus, a transfer of surplus from producers to consumers, and deadweight loss.
B.a persistent shortage, a transfer of surplus from producers to consumers, and deadweight loss.
C.a persistent shortage, a transfer of surplus from consumers to producers, and no deadweight loss.
D.a persistent surplus, a transfer of surplus from consumers to producers, and deadweight loss.

Question 60

Which is not an inefficiency caused by price ceilings?
A.inefficient allocation to consumers
B.wasted resources
C.illegal activity
D.inefficient allocation of sales among sellers

Question 61

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

Question 62

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

Question 63

(Figure: Rent Controls) Look at the figure Rent Controls.If rent controls are set at Rent0:

A)the shortage of rental units is the distance Q₁ - Q₃.
B)some renters would be willing to pay a price as high as Rent4 for Q0 units.
C)no one would have to pay a higher actual price than Rent0, nor would anyone be willing to do so.
D)there would be a surplus of rental units.

Question 64

All else equal, if a price floor that is above the equilibrium price is imposed on a market and the government buys the surplus, what will happen to consumer and producer surplus?
A.Consumer surplus will fall and producer surplus will rise.
B.Consumer surplus will fall and producer surplus will fall.
C.Consumer surplus will rise and producer surplus will fall.
D.Consumer surplus will rise and producer surplus will rise.

Question 65

Figure: The Market for Butter
(Figure: The Market for Butter) Look at the figure The Market for Butter.If a government price floor at $1.30 is imposed on this market, an inefficiency will result in the form of a:
A.surplus of 4.5 million pounds of butter.
B.shortage of 4.5 million pounds of butter.
C.surplus of 1.5 million pounds of butter.
D.shortage of 1.5 million pounds of butter.

Question 66

(Figure: Rent Controls) Look at the figure Rent Controls.Without rent controls, the equilibrium rent is _ .
A.Rent4
B.Rent1
C.Rent2
D.Rent3

Question 67

(Table: Market for Butter) Look at the figure Market for Butter.If the government imposes a price floor of $0.90 per pound of butter, the quantity of butter actually purchased will be:

A)10.5 million pounds.
B)9.0 million pounds.
C)1.5 million pounds.
D)10.0 million pounds.

Question 68

Figure: The Market for Butter
(Figure: The Market for Butter) Look at the figure The Market for Butter.If a government price floor at $1.10 is imposed on this market, an inefficiency will result in the form of a:
A.surplus of 4.5 million pounds of butter.
B.shortage of 4.5 million pounds of butter.
C.surplus of 1.5 million pounds of butter.
D.shortage of 1.5 million pounds of butter.

Question 69

(Figure: Rent Controls) Look at the figure Rent Controls.If rent controls are imposed and the government wants them to be immediately effective, they will most likely be set at either
________ or _.
A.Rent0; Rent1
B.Rent1; Rent3
C.Rent3; Rent4
D.Rent2; Rent4

Question 70

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

Question 71

If the government feels that the price in the market is too low for the , it can impose a _.

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

Question 72

Suppose the government sets a price floor of $2.85 per bushel on corn when the current price is $2.55.This price floor will:
A.cause a surplus of corn.
B.cause a shortage of corn.
C.have no effect on the price of corn.
D.increase the supply of corn.

Question 73

Figure: The Market for Butter
(Figure: The Market for Butter) Look at the figure The Market for Butter.The figure represents a competitive market for butter.If a government price floor at $1.40 is imposed on this market, an inefficiency will result in the form of a:
A.surplus of 4.5 million pounds of butter.
B.surplus of 6.0 million pounds of butter.
C.shortage of 6.0 million pounds of butter.
D.shortage of 4.5.million pounds of butter.

Question 74

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

Question 75

(Figure: Rent Controls) Look at the figure Rent Controls.If rent controls are set at Rent1:
A.rental apartments may be of inefficiently low quality.
B.there will be an efficient allocation of rentals.
C.some landlords may break the law by renting below the mandated price.
D.new apartments will be constructed.

Question 76

The United States and the European Union impose price floors on many agricultural products.These price floors lead to unwanted surpluses.To deal with a surplus:
A.the U.S.government typically pays farmers to produce as much as possible.
B.the U.S.government in some cases has destroyed the surplus production.
C.the European Union pays farm exporters to sell products for a profit overseas.
D.the U.S.government holds auctions to sell the surplus to the highest bidder.

Question 77

To be binding, a price floor must be set at a price:
A.lower than the equilibrium price.
B.higher than the equilibrium price.
C.at which quantity demanded exceeds quantity supplied.
D.lower than the equilibrium price and at which quantity demanded exceeds quantity supplied.

Question 78

Figure: Supply and Demand
(Figure: Supply and Demand) Look at the figure Supply and Demand.In the market shown in the figure, a binding price floor is represented by:
A.P₁.
B.P₂.
C.P₃.
D.point
C.

Question 79

Which of the following is a reason for governments imposing or maintaining price controls?
A.Some consumers and producers can benefit from price controls.
B.Price controls recapture the deadweight loss of equilibrium.
C.The government benefits from price controls.
D.Price controls improve the efficiency of the market.

Question 80

(Figure: Rent Controls) Look again at the figure Rent Controls.If rent controls are set at Rent3:

A)the shortage of rental units is the distance Q₃ - Q₁.
B)some renters would be willing to pay a price as high as Rent4 for Q₃ units.
C)no one would have to pay a higher actual price than Rent0, nor would anyone be willing to do so.
D)rent would remain at Rent2.