Deck 8: Perfect Competition

Question 1

Economists call the maximum legal price a price ceiling becausethe price:

A)cannot legally go lower than the ceiling.
B)cannot legally go higher than the ceiling.(True Answer )Correct
C)must match the legally established ceiling price.
D)All of the answers are correct.

Answer 1

B

Question 2

Price ceilings create five important effects:

A)shortages, reductions in product quality, wasteful lineups, a loss from gains to trade, and a misallocation of resources.(True
Answer )Correct
B)surpluses, increases in product quality, search costs, gains from trade, and resource attrition.
C)excess demand, long lines, poor service, efficiency, and arbitrage.
D)shortages, reduced time costs, low vacancy rates, blat, and deadweight loss.

Answer 2

A

Question 3

(Figure: Price Controls) Refer to the figure. Which of thefollowing price controls would cause a shortage of 20 units ofthe good?

A)a price ceiling of $10
B)a price floor of $10
C)a price ceiling of $6
D)a price floor of $6

Answer 3

C

Question 4

(Figure: Price Ceiling) Refer to the figure. A price ceiling of $10results in a:

A)shortage of 270 units.
B)shortage of 40 units.
C)surplus of 270 units.
D)surplus of 40 units.

Question 5

The price controls of the early 1970s caused:

A)lead to be removed from gasoline.
B)the disappearance of the full-service gas station.(True Answer )Correct
C)gas stations to stay open for more hours.
D)an excess supply of gasoline.

Question 6

A legal maximum price at which a good can be sold is a price:

A)stabilization.
B)ceiling.
C)support.
D)floor.

Question 7

(Figure: Government Price Controls) Refer to the figure. Thegovernment enacts a price control causing a shortage of 15units of the good. Therefore, the ________ is set at ________.

A)price floor; $31
B)price floor; $17
C)price ceiling; $10
D)price ceiling; $17

Question 8

Figure: Price Ceiling (Figure: Price Ceiling) Refer to the figure. If a price ceilingwere set at $12, there would be a:

A)shortage of 50 units.
B)surplus of 40 units.
C)shortage of 0 units.
D)surplus of 20 units.

Question 9

Figure: Price Ceiling (Figure: Price Ceiling) Refer to the figure. When a price ceilingof $10 is instituted by the government, consumers are able tobuy how many units of the product?

A)290 units
B)310 units
C)270 units
D)40 units

Question 10

At a price ceiling of $6 per sheet of drywall, quantity demandedis 100 and quantity supplied is 75. What will happen in thedrywall market if there is an increased demand for drywall inthe construction industry?

A)Equilibrium will be restored.
B)The shortage of drywall will fall below 25 units.
C)The shortage of drywall will increase above 25 units.(True Answer )Correct
D)The surplus of drywall will increase above 25 units.

Question 11

A shortage results when:

A)a price floor is imposed.
B)a price ceiling is imposed.
C)there is excess supply without any price controls.
D)a price floor is imposed but it is not binding.

Question 12

Which of the following is NOT an effect of a price ceiling?

A)surpluses
B)misallocation of resources
C)loss of gains from trade
D)wasteful lineups

Question 13

Shortages occur when prices are held below the market price,causing the quantity demanded to exceed the quantity supplied.This is a result of price:

A)floors.
B)ceilings.
C)gouging.
D)competition.

Question 14

Because of government price controls, a business must now sellsoft-serve ice cream at half its original price. This businessmight respond by:

A)offering smaller servings of ice cream.
B)skimping on toppings of nuts, fudge, and cherries.
C)reducing hours of operation.
D)All of the answers are correct.

Question 15

Price ceilings would create all of the following effects EXCEPT:

A)shortages.
B)reductions in product quality.
C)a misallocation of resources.
D)maximum gains from trade.

Question 16

A price ceiling is a(n):

A)legally established minimum price that can be charged for a good.
B)illegally established minimum price that can be charged for a good.
C)legally established maximum price that can be charged for a good.
D)illegally established maximum price that can be charged for a good.

Question 17

A price ceiling creates a ________ when it is set ________.

A)surplus; below the equilibrium price
B)surplus; above the equilibrium price
C)shortage; below the equilibrium price
D)shortage; above the equilibrium price

Question 18

When the maximum legal price is below the market price wesay that there is a price:

A)floor.
B)stabilization.
C)support.
D)ceiling.

Question 19

(Figure: Government Price Controls) Refer to the figure. If thegovernment sets the price ceiling at $31, there will be:

A)a shortage of 15 units.
B)a surplus of 15 units.
C)a supply of 20 units.
D)no effect on the market.

Question 20

The lower the price ceiling is relative to the market equilibriumprice, the:

A)larger the surplus.
B)smaller the surplus.
C)smaller the shortage.
D)larger the shortage.

Question 21

Which of the following would be the least likely result of a priceceiling imposed in the market for gasoline?

A)Buyers line up to buy gasoline.
B)Buyers bribe station attendants to fill up their tanks.
C)Some buyers will get less gasoline than they want.
D)Competition in the market will be eliminated.(True Answer )Correct

Question 22

A)$100; $80
B)$80; $90
C)$60; $75
D)$40; $60

Question 23

Which of the following observations would be consistent withthe impact of price ceilings?

A)Books are printed on higher quality paper.
B)Full-service gasoline stations stay open for 24 hours.
C)New automobiles are painted with more coats of paint.
D)Newspapers switch to a smaller font size in order to decrease bulk.

Question 24

Figure: Effects of Price Ceilings (Figure: Effects of Price Ceilings) Refer to the figure. Supposethat the data represent the retail gasoline market. At a priceceiling of $2, the total value of wasted time from waiting in lineis:

A)$5.
B)$10.
C)$15.
D)$20.

Question 25

Figure: Costs of Price Ceilings (Figure: Costs of Price Ceilings) Refer to the figure. What is thedollar amount of lost producer surplus after the price ceiling of$4 has been implemented?

A)$90
B)$10
C)$160
D)$80

Question 26

If a seller facing excess demand is unable to raise the price ofthe good due to a price ceiling, the seller might:

A)increase the quantity supplied of the product.
B)decrease the price of the product.
C)increase the quality of the product.
D)decrease the level of service for that product.(True Answer )Correct

Question 27

(Figure: Costs of Price Ceilings) Refer to the figure. What is thedollar amount of the value of wasted time if a price ceiling of $4is implemented?

A)$160
B)$180
C)$320
D)$220

Question 28

In situations of excess demand, sellers might lower quality whenthey are unable to raise prices because they wish to:

A)reduce excess demand.
B)raise their profit levels.
C)decrease surpluses.
D)raise their sales.

Question 29

If a seller facing excess demand is unable to raise the price ofthe good due to a price ceiling, a likely result will be:

A)an increase in the quantity supplied of the product.
B)an increase in the price of the product.
C)a decrease in the quality of the product.(True Answer )Correct
D)a further decrease in the price of the product.

Question 30

Price ceilings reduce quality because:

A)buyers are willing to accept lower quality of goods with lower prices.
B)facing excess demand sellers cannot raise prices to increase profit.
C)the law would mandate the quality of goods to match the price of the goods.
D)None of the answers is correct.

Question 31

(Figure: Losses from Price Ceilings) Refer to the figure. At aprice ceiling of $1, the area representing the total value ofwasted time is ________, and the area of the deadweight loss is________.

A)ab; de
B)bd; ce
C)abdf; ce
D)bc; de

Question 32

At a price ceiling of $1 per loaf of bread, quantity supplied is 99loaves, which is less than quantity demanded. What must betrue for the 100th loaf of bread?

A)Consumers do not value the 100th loaf of bread.
B)The cost of producing the 100th loaf of bread is less than $1.00.
C)Consumers value the 100th loaf of bread at less than $1.00.
D)Consumers value the 100th loaf of bread more than it costs producers to make it.

Question 33

Figure: Effects of Price Ceilings (Figure: Effects of Price Ceilings) Refer to the figure. At a priceceiling of $2 per unit, consumers are willing to pay a maximumof:

A)$2.00.
B)$2.50.
C)$3.00.
D)$4.00.

Question 34

Figure: Price Ceiling of Ps (Figure: Price Ceiling of Ps) Refer to the figure. Suppose a priceceiling of Ps is imposed. The shaded area may likely representall of the following EXCEPT:

A)value of wasted time.
B)the amount that buyers bribe sellers.
C)the amount of corruption.
D)consumer surplus.

Question 35

(Figure: Price Ceiling of Ps) Refer to the figure. Suppose a priceceiling of Ps is imposed. As a result:

A)the quantity supplied in the market is Qs.
B)buyers' willingness to pay for the good is Pd.
C)the quantity demanded in the market is Qd.
D)All of the answers are correct.

Question 36

Price ceilings set by the government:

A)are desirable because they make markets more efficient.
B)can restore a market to equilibrium.
C)are generally believed to cause reductions in product quality.
D)are imposed to assist the poor without having adverse effects.

Question 37

If a price ceiling on gasoline is imposed, the total price ofgasoline a buyer pays is likely to equal the legal price:

A)minus the value of wasted time.
B)minus the value of bribery.
C)plus the value of consumer surplus.
D)plus the value of corruption.

Question 38

(Figure: Effects of Price Ceilings) Refer to the figure. At a priceceiling of $2:

A)bribes of $1 per unit may be common.
B)seller discounts of $1 may be common.
C)bribes of $3 per unit may be common.
D)seller discounts of $3 per unit may be common.

Question 39

Allocating products with long lines, using a first-come, first-served system, is:

A)the only way scarce goods can be allocated.
B)necessary when waiting is a costless exercise.
C)efficient, since people who are willing to wait the longest get the products.
D)inefficient, because waiting wastes time.(True Answer )Correct

Question 40

Which of the following statements about price ceilings isTRUE?
I) Price ceilings cause quantity demanded to exceed quantitysupplied
II)When including time costs and bribes, consumers pay a totalprice in excess of the price ceiling
III) All else equal, it is more wasteful to allocate goods based onbribes than on waiting time costs.

A)I only
B)II and III only
C)I and II only
D)I, II, and III

Question 41

Price controls cause resources to be ________ not justgeographically, but also across different ________ of thoseresources.

A)overutilized; types
B)properly allocated; demands
C)cheaper; uses
D)misallocated; uses

Question 42

The effects of price ceilings:

A)are limited to the price controlled market.
B)weaken over time.
C)extend beyond the price controlled market.(True Answer )Correct
D)encourage the entry of new firms.

Question 43

In a market with a price ceiling which of the following isTRUE?

A)Buyers and sellers experience unexploited gains from trade.
B)Resources are allocated to their most efficient uses.
C)The supply of goods is sold by the sellers with the lowest costs.
D)The supply of goods is bought by the buyers with the highest willingness to pay.

Question 44

(Figure: Price Ceilings and Valuation of Uses) Refer to thefigure. Suppose a price ceiling of $15 goes into effect. If thegoods are allocated only to the highest value uses, the totalconsumer surplus in the market would be:

A)$3,000.
B)$500.
C)$2,500.
D)$1,000.

Question 45

A market with price ceilings fails to maximize all of thefollowing EXCEPT:

A)the gains from trade.
B)consumer surplus.
C)excess supply.
D)producer surplus.

Question 46

During the energy crisis of the 1970s, President Nixon orderedgas stations to close between 9:00 PM Saturday and 12:01 AMMonday, in an attempt to prevent wasteful and unnecessarySunday driving. This policy:

A)proved effective in reducing the shortage of gasoline.
B)gave people the incentive to fill up their tanks earlier in the week.
C)indirectly caused many churches to close on Sunday.
D)All of the answers are correct.

Question 47

(Figure: Price Ceilings and Consumer Valuation) Refer to thefigure. Suppose a price ceiling of $3 goes into effect. If the goodssold are allocated to buyers randomly, what is the totalconsumer surplus in this market?

A)$90
B)$120
C)$30
D)$150

Question 48

When an effective price ceiling causes a shortage, some of thebuyers who value the good the most may not be able to get thegood. Why does this occur?

A)The highest value users cannot outbid the lower valued users and so the seller cannot distinguish between them.(True
Answer )Correct
B)The highest value users are eliminated from the market due to the price ceiling.
C)The price ceiling causes the price to rise so high that even the highest value users cannot afford the good.
D)The government purchases most of the goods.

Question 49

(Figure: Costs of Price Ceilings) Refer to the figure. What is thedollar amount of the deadweight loss after the price ceiling of$4 has been implemented?

A)$160
B)$180
C)$20
D)$10

Question 50

(Figure: Price Ceilings and Consumer Valuation) Refer to thefigure. Suppose a price ceiling of $3 goes into effect. If the goodssold are allocated only to the highest value users, the totalconsumer surplus in the market would be:

A)$180.
B)$30.
C)$120.
D)$150.

Question 51

(Figure: Price Ceilings and Consumer Surplus) Refer to thefigure. There is a price ceiling of $20. What is the value ofconsumer surplus if all units of the good are allocated to thehighest valued uses?

A)$40
B)$120
C)$200
D)$210

Question 52

(Figure: Price Ceilings and Valuation of Uses) Refer to thefigure. Suppose a price ceiling of $15 goes into effect. If thehighest value use and the lowest value use are equally likely tobe satisfied, then the average value of the product is:

A)$45.
B)$30.
C)$25.
D)$35.

Question 53

Do price ceilings misallocate resources?

A)Yes, because people who value the good the most are unable to bid it away from low-valued uses.
B)Yes, because people who value the good the least are unable to afford the good.
C)No, because the good is still allocated based on willingness to pay.
D)No, because the rich and poor alike stand an equal chance in getting the good.

Question 54

(Figure: Price Ceilings and Consumer Surplus) Refer to thefigure. There is a price ceiling of $20. What is the value ofconsumer surplus if all the goods are allocated randomly?

A)$120
B)$180
C)$80
D)None of the answers is correct.

Question 55

Price controls cause resources to be misallocated by:

A)distorting the signals of suppliers' willingness to supply and eliminating the incentives for demanders to pay.
B)distorting the signals of demanders' willingness to pay and eliminating the incentives for suppliers to supply.(True Answer
)Correct
C)distorting the incentives for suppliers to supply and eliminating the signals of demanders' willingness to
Pay)
D)distorting the incentives for demanders to pay and eliminating the signals of suppliers' willingness to
Supply.

Question 56

(Figure: Price Ceilings and Consumer Valuation) Refer to thefigure. Suppose a price ceiling of $3 goes into effect. What is theloss of consumer surplus due to the random allocation of pricecontrolled goods compared to the allocation only to the highestvalue users?

A)$90
B)$60
C)$150
D)$30

Question 57

A)the worst-case scenario.
B)the best-case scenario.
C)random allocation of the product between highest-valued and lowest-valued users.
D)total consumer surplus is maximized in the market.

Question 58

In 1972-1973, the swimming pools in California were heatedbut homes in New Jersey were cold, is an example of a(n):

A)misallocation of resources caused by price controls.(True Answer )Correct
B)market failure caused by speculators.
C)market inefficiency caused by monopoly oil companies.
D)excess supply of oil caused by the business cycle.

Question 59

(Figure: Price Ceilings and Valuation of Uses) Refer to thefigure. The single highest value user is willing to pay how manydollars for the product?

A)$15
B)$25
C)$45
D)$35

Question 60

A deadweight loss is the total of:

A)consumer and producer surplus when all mutually profitable gains from trade are exploited.
B)consumer and producer surplus when all mutually profitable gains from trade are not exploited.
C)lost consumer and producer surplus when all mutually profitable gains from trade are exploited.
D)lost consumer and producer surplus when all mutually profitable gains from trade are not exploited.(True Answer
)Correct

Question 61

A rent control is a regulation that:

A)ensures apartments being available for rent.
B)controls rents at constant levels.
C)upholds rents to above equilibrium levels.
D)prevents rents from rising to equilibrium levels.(True Answer )Correct

Question 62

Because rent controls on apartments reduce profits:

A)developers build and rent more apartments to make up for lost profit.
B)condominiums are converted into apartments.
C)landlords are less likely to discriminate against minorities in renting out apartments.
D)apartment managers will give less consideration to renters' complaints.

Question 63

Rent controls are:

A)price floors on rental housing.
B)price ceilings on rental housing.
C)quality freezes on rental housing.
D)quantity freezes on rental housing.

Question 64

Which of the following is NOT a result of rent control?

A)higher quality housing
B)bribery
C)fewer new apartments offered for rent
D)less maintenance provided by landlords

Question 65

Under rent control, bribery is used to:

A)allocate housing to the most deserving tenants.
B)make the total price of a rental property (including the bribe) less than the market price that would prevail without rent
Controls.
C)make the total price of a rental property (including the bribe) closer to the market price that would prevail without rent
Controls.
D)allocate the housing to the poorest individuals in the market.

Question 66

Which of the following events occurred during the 1973-1974oil crisis in the United States?
I) Gas stations were ordered to be closed between 9 PM onSaturday and 12:01 AM on Monday
II)The government decided to allocate oil by command
III) The 55 mph speed limit was repealed.IV. Daylight savings time was implemented.

A)I and IV only
B)I, II, and III only
C)I, II, and IV only
D)I, III, and IV only

Question 67

Which of the following would be the least likely result of a priceceiling imposed in the market for rental cars?

A)slow replacement of old rental cars with new ones
B)poor maintenance of the rental cars
C)dirtier exteriors and interiors of rental cars
D)free gasoline given to people as an incentive to rent a car

Question 68

Economists blame the long lines at gasoline stations in theUnited States during the 1970s as well as the long delays inconstruction projects on:

A)consumers who bought gas too frequently.
B)the Organization of Petroleum Exporting Countries (OPEC).
C)major oil companies operating in the U.S.
D)U.S.government regulation of gasoline prices.(True Answer )Correct

Question 69

How did economists try to prove that reductions in newapartment building in Ontario, Canada, during the 1970-1975period were a result of debates on rent control?
They:

A)showed that the economy was declining during this period.
B)pointed to the fact that the OPEC oil crisis occurred at this time.
C)contrasted the fact that apartment building was declining while new house building was rising, in the same state of
Economy.
D)pointed to the fact that rent controls had not been implemented during the OPEC oil crisis.

Question 70

Which of the following cases would be the least likely result ofrent controls?

A)Landlords are more selective with respect to the people they rent apartments to.
B)Landlords provide less maintenance on the apartments.
C)More new apartments are available for rent.(True Answer )Correct
D)More people look for apartments for rent than the number of apartments available.

Question 71

After President Reagan repealed the price controls on gasoline:

A)the supply of gasoline fell dramatically.
B)the market experienced a period of vast surpluses as a result of the lack of regulation.
C)prices rose a little at first, but quickly supply began to increase and prices fell.
D)prices rose dramatically as a result of the repealed legislation.

Question 72

Under rent control tenants can expect:

A)lower rent and higher quality housing.
B)lower rent and lower quality housing.
C)higher rent and a shortage of housing.
D)higher rent and a surplus of housing.

Question 73

Over time, housing shortages caused by rent control ______because the supply of housing is ______ elastic in the long run.

A)increase; less
B)increase; more
C)decrease; less
D)decrease; more

Question 74

Ultimately repealing the price controls on gasoline and oil:

A)led to permanently higher gasoline prices.
B)led to a higher supply of gasoline and lower prices.(True Answer )Correct
C)was disastrous as the market collapsed due to a lack of government regulation.
D)was not able to eliminate the shortages of gasoline in the United States.

Question 75

Under rent controls:

A)some mutually profitable trades are illegal and therefore the benefits are never realized.
B)producer surplus is zero.
C)the quantity demanded of apartments is typically less than the quantity supplied.
D)buyers are better off at the expense of sellers.

Question 76

Which President ended the price controls on oil?

A)Nixon
B)Ford
C)Carter
D)Reagan

Question 77

Which of the following events occurred during the 1973-1974oil crisis in the United States?

A)Gas stations were ordered to be closed between 9 PM on Saturday and 12:01 AM on Monday.
B)Daylight savings time was implemented.
C)There were shortages of steel drilling equipment.
D)All of the answers are correct.

Question 78

Rent control in New York City has resulted in:

A)people living in luxury apartments and paying low rents.
B)people having to bribe landlords to get apartments.
C)people having difficulty finding apartments.
D)All of the answers are correct.

Question 79

A)12,000; 4,000
B)4,000; 12,000
C)8,000; 4,000
D)8,000; 12,000

Question 80

Vietnam's foreign minister said, "The Americans couldn'tdestroy Hanoi, but we have destroyed our city by very lowrents." He was referring to the fact that:

A)very low rents provided very little income for carrying out warfare.
B)very low rents turned portions of city housing into a state of disrepair and slum-like conditions.
C)the Americans did not install proper city housing codes in Hanoi.
D)bombing a city is always worse than rent control.