Deck 5: Price Controls and Quotas: Meddling With Markets

Question 1

A price control is:

A) control of the price of a good by the firm that produces it.
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 on the sale of a good that controls the market price.

Answer 1

B

Question 2

Use the following to answer questions:
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.

Answer 2

A

Question 3

Use the following to answer questions:
Figure: Rent Controls
(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 will be willing to pay a price as high as Rent₄ for Q₁ units.
C) no one will have to pay a higher actual price than Rent₀, nor will anyone be willing to do so.
D) there will be a surplus of rental units, but it is impossible to tell how large the surplus is based on the information provided.

Answer 3

A

Question 4

Use the following to answer questions:
Figure: Rent Controls
(Figure: Rent Controls) Look 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 will be willing to pay a price as high as Rent₄ for Q₃ units.
C) no one will have to pay a higher actual price than Rent₀, nor will anyone be willing to do so.
D) rent will remain at Rent₂.

Question 5

Use the following to answer questions:
Figure: Rent Controls
(Figure: Rent Controls) Look at the figure Rent Controls. Without rent controls, the equilibrium quantity is:

A) Q₄.
B) Q₁.
C) Q₂.
D) Q₃.

Question 6

Use the following to answer questions:
(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 7

Use the following to answer questions:
Figure: Rent Controls
(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 will be willing to pay a price as high as Rent₄ for Q₀ units.
C) no one will have to pay a higher actual price than Rent₀, nor will anyone be willing to do so.
D) there will be a surplus of rental units.

Question 8

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.

Question 9

Use the following to answer questions:
(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 10

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 11

Use the following to answer questions:
Figure: Rent Controls
(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 12

Use the following to answer questions:
Figure: Rent Controls
(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 13

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 14

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:

A) quantity demanded will decrease.
B) quantity supplied will increase.
C) there will be a shortage of apples.
D) the price floor will not affect the market price or output.

Question 15

A binding price ceiling is designed to:

A) keep prices below the equilibrium level.
B) increase the quality of the good.
C) prevent shortages.
D) increase efficiency.

Question 16

Use the following to answer questions:
Figure: Rent Controls
(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 17

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 18

Use the following to answer questions:
Figure: Rent Controls
(Figure: Rent Controls) Look at the figure Rent Controls. Suppose that rent controls are imposed. If the government wanted a rent control ceiling to be effective immediately, what is one possible price to set?

A) Rent₃
B) Rent₄
C) Rent₁
D) Rent₂

Question 19

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 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.

Question 20

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.

Question 21

Use the following to answer questions:
(Table: The Market for Soda) Look at the table The Market for Soda. If the government imposes a price ceiling of $1 per can of soda, the quantity of soda supplied will be:

A) 7 cans.
B) 8 cans.
C) 9 cans.
D) 10 cans.

Question 22

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 23

Use the following to answer questions:
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, the result will be an inefficiency in the form of a _____ million apartments.

A) surplus of 0.6
B) surplus of 0.8
C) shortage of 0.8
D) shortage of 0.6

Question 24

A student organization is formed on your college campus to protest against the high rent 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 25

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 26

The most likely reason that the government implements a _____ is because it feels the price is too high for _____.

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

Question 27

Use the following to answer questions:
Table: Market for Apartments
(Table: Market for Apartments) Look at the table Market for Apartments. If a price ceiling of $900 is imposed on this market, the result will be an inefficiency in the form of a _____ million apartments.

A) surplus of 0.6
B) shortage of 0.6
C) surplus of 0.2
D) shortage of 0.2

Question 28

Hugo Chávez was the president of Venezuela. Venezuela is a major producer of oil products, which remain the keystone of Venezuela's economy. Suppose President Chávez wanted to increase his popularity with the citizens of Venezuela and enacted a government policy to reduce the price of gasoline sold at state-owned gas stations to 50% of the previous price. Assuming a downward-sloping demand curve for gasoline, in theory, this policy would 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 29

The dictator of a small country restricts the price of cars to an amount less than or equal to $1,200 (a price below the equilibrium price for cars). Such a policy would set a:

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

Question 30

Use the following to answer questions:
Table: Market for Apartments
(Table: Market for Apartments) Look at the table Market for Apartments. If a price ceiling of $700 is imposed on this market, the result will be an inefficiency in the form of a _____ million apartments.

A) surplus of 0.6
B) shortage of 0.6
C) surplus of 0.2
D) shortage of 0.2

Question 31

A maximum price set below the equilibrium price is a:

A) demand price.
B) supply price.
C) price floor.
D) price ceiling.

Question 32

Use the following to answer question:
Figure: Price Control
(Figure: Price Control) Look at the figure Price Control. One effective price ceiling would be the price indicated at point _____, and there would be a _____ 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 33

Hugo Chávez was the president of Venezuela. Venezuela is a major producer of oil products, which remain the keystone of Venezuela's economy. Suppose President Chávez wanted to increase his popularity with the citizens of Venezuela and enacted a government policy to reduce the price of gasoline sold at state-owned gas stations to 50 percent of the previous price. This policy is called a:

A) laissez faire policy.
B) price floor.
C) price ceiling.
D) quota.

Question 34

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 35

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 $0.40 per pound:

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 36

Use the following to answer questions:
(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 two cans.
B) a shortage of three cans.
C) a surplus of three cans.
D) equilibrium in the market for soda.

Question 37

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 38

Use the following to answer questions:
(Table: The Market for Soda) Look at the table The Market for Soda. If the government imposes a price ceiling of $1 per can of soda, the quantity of soda demanded will be:

A) 10 cans.
B) 8 cans.
C) 6 cans.
D) 4 cans.

Question 39

Suppose that the average cost of a doctor visit is $100. If the government imposes a price ceiling of $50 on the cost of a doctor visit, there will be:

A) an excess supply of doctor visits.
B) an excess demand for doctor visits.
C) an increase in the equilibrium number of doctor visits.
D) no change in the number of doctor visits.

Question 40

Use the following to answer question:
(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 _____ fried Twinkies.

A) shortage of 3,000
B) shortage of 5,000
C) surplus of 8,000
D) surplus of 3,000

Question 41

Use the following to answer question:
Figure: The Market for Hybrid Cars
(Figure: The Market for Hybrid Cars) Look at the figure The Market for Hybrid Cars. If there were a binding price ceiling in the market for hybrid cars, one possible price would be equal to _____; consumers would demand _____; and producers would supply _____.

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

Question 42

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

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 43

Use the following to answer question:
(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 44

Black markets may develop as a result of 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 45

Use the following to answer questions:
Figure: Supply and Demand
(Figure: Supply and Demand) Look at the figure Supply and Demand. A binding price ceiling is represented by:

A) the price P₁.
B) the price P₂.
C) the price P₃.
D) point C.

Question 46

Producers will 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 47

Use the following to answer questions:
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, the market outcome would be a _____ of _____ textbooks.

A) surplus; 30
B) surplus; 10
C) shortage; 30
D) shortage; 10

Question 48

Use the following to answer questions:
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 price _____, and one possible binding price control would be _____.

A) floor; $100
B) floor; $40
C) ceiling; $40
D) ceiling; $100

Question 49

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 50

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 51

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 52

The Atlanta Symphony wants to make sure that its concerts are affordable for all residents of Atlanta and therefore prices all of its tickets at $25. 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 53

By definition, 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 54

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 55

Rent controls usually set a 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 56

If the government imposes binding rent control:

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 cause a surplus of housing.

Question 57

Price ceilings 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 58

Use the following to answer questions:
Figure: Supply and Demand
(Figure: Supply and Demand) Look at the figure Supply and Demand. A price ceiling of 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 59

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) 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 60

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 61

Use the following to answer question:
(Table: The Market for Soda) Look at the table The Market for Soda. If the government imposes a price floor of $1 per can of soda, there will be:

A) a shortage of two cans.
B) a shortage of three cans.
C) a surplus of three cans.
D) equilibrium in the market for soda.

Question 62

All else equal, if a price floor above the equilibrium is imposed on a market and the government buys the surplus, consumer surplus will _____ and producer surplus will _____.

A) fall; rise
B) fall; fall
C) rise; fall
D) rise; rise

Question 63

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 on world markets.
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 64

Use the following to answer question:
Figure: Supply and Demand
(Figure: Supply and Demand) Look at the figure Supply and Demand. A binding price floor is represented by:

A) P₁.
B) P₂.
C) P₃.
D) point C.

Question 65

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 66

Use the following to answer question:
(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 _____ million pounds.

A) 10.5
B) 9.0
C) 1.5
D) 10.0

Question 67

Rent controls in New York City cause all of the following EXCEPT:

A) inefficiently low-quality apartments.
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 68

A binding rent-control price ceiling results in all of the following EXCEPT:

A) inefficiently low quantity of the good exchanged.
B) wasted resources of consumers caused by time spent searching for the good.
C) inefficient allocation of the good to consumers.
D) inefficiently high quality of the good being sold.

Question 69

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 70

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 71

Which is NOT an inefficiency caused by binding price ceilings?

A) inefficient allocation to consumers
B) wasted resources
C) illegal activity
D) inefficient allocation of sales among sellers

Question 72

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

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

Question 73

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 are removed.
C) It is politically expedient to enact regulations that benefit influential voting groups.
D) Price controls are always effective.

Question 74

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

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 75

A price ceiling is likely to result in a persistent _____, a transfer of surplus from _____, and _____ deadweight loss.

A) surplus; producers to consumers; some
B) shortage; producers to consumers; some
C) shortage; consumers to producers; no
D) surplus; consumers to producers; some

Question 76

Use the following to answer questions:
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 _____ of _____ million pounds of butter.

A) surplus; 4.5
B) surplus; 6.0
C) shortage; 6.0
D) shortage; 4.5

Question 77

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 78

Use the following to answer questions:
Figure: The Market for Butter
(Figure: The Market for Butter) Look at the figure The Market for Butter. If a government price floor at $1.20 is imposed on this market, an inefficiency will result in the form of a _____ of _____ million pounds of butter.

A) surplus; 4.5
B) shortage; 4.5
C) surplus; 1.5
D) shortage; 1.5

Question 79

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 80

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 caused by price ceilings.
D) the only way to solve the problem of poverty.