Deck 4: Prices: Free, Controlled, and Relative

Question 1

Buyers always prefer lower prices to higher prices.

Answer 1

False

Question 2

If the minimum wage law sets a price floor that is below the equilibrium wage in the unskilled labor market, the minimum wage will create a shortage of unskilled labor.

Answer 2

False

Question 3

In order for a price floor to have an impact on a market it must be set below the equilibrium price.

Answer 3

False

Question 4

A shortage of unskilled labor will occur if the minimum wage is set below the equilibrium wage in the unskilled labor market.

Question 5

In 1973 and 1979, the U.S. federal government imposed price ceilings on gasoline which resulted in surpluses of gasoline.

Question 6

In order for a price ceiling to have an impact on a market it must be set above the equilibrium price.

Question 7

A price ceiling is a government-mandated

A)minimum price below which legal trades cannot be made.
B)maximum price above which legal trades cannot be made.
C)minimum price above which legal trades cannot be made.
D)maximum price below which legal trades cannot be made.

Question 8

A tax placed on a good can make that good relatively more expensive and its substitutes relatively less expensive.

Question 9

Suppose the government imposes a price ceiling above the equilibrium price of a given good. Which of the following is the most likely result?

A)Some other rationing device will emerge to allocate the good among buyers.
B)Some buyers and sellers will be willing to risk breaking the law in order to exchange the good at a price above the equilibrium price since there would be a shortage of the good at the price ceiling.
C)No change will occur in the market.
D) Brute force will be used to allocate the good among buyers.
E)a, b, and d

Question 10

The minimum wage is a good example of a price floor.

Question 11

There is currently a price ceiling in the market for transplanted kidneys, which has helped to create a shortage of transplanted kidneys.

Question 12

Price ceilings sometimes result in some buyers and sellers purchasing the good at prohibited prices.

Question 13

It is possible for the absolute price of a good to rise at the same time that the good's relative price is falling.

Question 14

Suppose you live in New York City and the government has imposed price ceilings on apartment rental rates. You want to rent an apartment from Smith, who says that unless you buy the furniture in the apartment for $4,000, he cannot rent the apartment to you. The condition of buying the furniture could be considered

A)a price ceiling.
B)a price floor.
C)a tie-in sale.
D)to be something no renter would agree to.
E)c and d

Question 15

A deadweight loss is the loss to society of not producing the supply-and-demand determined level of output.

Question 16

A rationing device is needed because scarcity exists.

Question 17

The absolute price of a good is the price of that good in terms of another good.

Question 18

A price floor creates a situation in which one party wins and another party loses, and the gains for the winner are equal to the losses for the loser.

Question 19

The need for a rationing device results from scarcity.

Question 20

Which of the following would not result from a price ceiling (set below the equilibrium price)?

A)a shortage
B)fewer exchanges
C)an increase in supply
D)nonprice rationing devices

Question 21

Exhibit 4-3
Refer to Exhibit 4-3. If price P₁ is a price ceiling, then

A)there is a surplus in the market for good X.
B)the highest price that can legally be charged in this market is P₃.
C)the price at which exchange legally takes place is P₂.
D)the price at which exchange legally takes place is P₁.

Question 22

Which of the following statements is true?

A)Price ceilings set below the equilibrium price cause shortages.
B)Surpluses result when a price floor is set below the equilibrium price.
C)Price ceililngs set above the equilibrium price cause surpluses.
D)Price ceilings are set by the market and price floors are set by the government.

Question 23

Exhibit 4-1
Refer to Exhibit 4-1. Some buyers will offer sellers $7 per unit instead of the $6 price ceiling because

A)$7 is closer to the equilibrium price and buyers prefer equilibrium prices to all others.
B)they think it is only fair for sellers to receive higher prices.
C)they want to increase their chances of buying a good for which there is a shortage.
D)it is customary to pay more than the price ceiling.

Question 24

Exhibit 4-2
Exhibit 4-2 represents the orange juice market. The horizontal line represents a price ceiling imposed by the government. Which of the following is true?

A)At equilibrium, the quantity demanded is 700 units.
B)At the price ceiling, there is a surplus of orange juice.
C)The quantity supplied at the price ceiling will equal the quantity exchanged.
D)The quantity demanded at the price ceiling will equal the quantity supplied.
E)The quantity demanded at the price ceiling will equal the quantity exchanged.

Question 25

A price floor (set above the equilibrium price)on rice will

A)force otherwise profitable farmers out of business.
B)result in a shortage of rice.
C)result in a surplus of rice.
D)clear the market for rice.

Question 26

Which of the following is true?

A)Buyers always prefer lower prices to higher prices.
B)Buyers never prefer lower prices to higher prices.
C)Buyers rarely prefer lower prices to higher prices.
D)Buyers prefer lower prices to higher prices, ceteris paribus.

Question 27

Exhibit 4-1
Refer to Exhibit 4-1. At the equilibrium price, ________ units of the good would be exchanged.  With a price ceiling, _______ units of the good would be exchanged.

A)125; 75
B)75; 125
C)175; 125
D)125; 175

Question 28

Exhibit 4-2
Exhibit 4-2 represents the orange juice market. The horizontal line represents a price ceiling imposed by the government. How many fewer units would be exchanged at the price ceiling compared to the number that would be exchanged at the equilibrium price?

A)200 units.
B)100 units.
C)400 units.
D)800 units.

Question 29

Exhibit 4-1
Refer to Exhibit 4-1. Suppose the good shown is being sold at the $6 price ceiling. At a quantity of 75 units, what is the maximum per-unit price buyers would be willing to pay for a good "tied" to the good shown in the exhibit?

A)$10
B)$8
C)$6
D)$4

Question 30

Suppose the government sets a price floor that is above the equilibrium price for a given good. It can be said that at the price floor,

A)although sellers are selling all of the product that they desire at this price, the consumers are not able to buy all that they desire.
B)although consumers are purchasing all of the product that they desire at this price, the sellers are not selling all that they desire.
C)both sellers and buyers are satisfied with the quantity that is being exchanged.
D)both sellers and buyers are exchanging the equilibrium quantity of this good.

Question 31

Jake is an excellent barber. However, all customers who come to him for a haircut must buy a bottle of shampoo. This type of arrangement is known as

A)a tie-in sale.
B)a sweetheart deal.
C)an exclusive contract.
D)a cross subsidy.

Question 32

Exhibit 4-1
Refer to Exhibit 4-1. The number of units bought and sold at the price ceiling is

A)75.
B)125.
C)175.
D)100.

Question 33

One of the effects of a price floor (set above equilibrium price)is

A)a surplus.
B)higher-quality goods are produced.
C)more satisfied customers.
D)a shortage.

Question 34

A price ceiling set below the equilibrium price will

A)clear the market for the good.
B)result in a shortage of the good.
C)result in a surplus of the good.
D)induce new firms to enter the industry.

Question 35

Price ceilings and price floors

A)shift demand and supply curves and therefore have no effect upon the rationing function of prices.
B)interfere with the rationing function of prices.
C)make the rationing function of free markets more efficient.
D)cause surpluses and shortages, respectively.

Question 36

Exhibit 4-2
Exhibit 4-2 represents the orange juice market. The horizontal line at $2 shows a price ceiling imposed by the government. Which of the following statements is true at this price?

A)At the price ceiling the surplus equals 400 units.
B)At the price ceiling the shortage equals 400 units.
C)At the price ceiling the surplus equals 300 units.
D)At the price ceiling the shortage equals 200 units.

Question 37

Exhibit 4-1
Refer to Exhibit 4-1. How many fewer units are bought and sold because of the price ceiling than would have been bought and sold at the equilibrium price?

A)50
B)60
C)65
D)100

Question 38

Exhibit 4-3
Refer to Exhibit 4-3. If price P₂ is a price ceiling, then

A)there is a shortage in the market for good X.
B)the highest price that can legally be charged in this market is P₃.
C)the price at which exchange legally takes place in the market for good X is P₂.
D)the quantity exchanged is less than the quantity demanded.

Question 39

A price floor set above the equilibrium price will

A)clear the market for the good.
B)result in a shortage of the good.
C)result in a surplus of the good.
D)force some firms in this industry to go out of business.

Question 40

A price floor is a government-mandated

A)minimum price below which legal trades cannot be made.
B)maximum price above which legal trades cannot be made.
C)minimum price at which all units of the good must be legally sold.
D)minimum price below which legal trades can be made.

Question 41

Exhibit 4-4
Refer to Exhibit 4-4. Which of the following statements is false ?

A)Graph (1): A price ceiling set at P₂ would not have an impact on the market.
B)Graph (2): As supply increases, equilibrium price remains constant.
C)Graph (3): As demand increases, equilibrium quantity remains constant.
D)Graph (4): As supply increases, equilibrium quantity increases.

Question 42

Situation 4-1 During the winter of 1973-74, a general system of wage and price controls (including a price ceiling on gasoline)was in force in the United States. At the beginning of 1974, some oil-producing countries imposed an oil embargo (a legal prohibition on commerce)on the West. In the spring of 1974, price controls were abolished.
Refer to Situation 4-1. An economist would have most likely predicted that once price controls were abolished in the spring of 1974,

A)the price of gasoline would decline sharply.
B)the surplus of gasoline would go away.
C)the shortage of gasoline would go away.
D)the demand for gasoline would decrease.

Question 43

Situation 4-1 During the winter of 1973-74, a general system of wage and price controls (including a price ceiling on gasoline)was in force in the United States. At the beginning of 1974, some oil-producing countries imposed an oil embargo (a legal prohibition on commerce)on the West. In the spring of 1974, price controls were abolished.
Refer to Situation 4-1. If no price controls had been in place, the effect of the oil embargo on the equilibrium price and quantity of gasoline would have been

A)an increase in both price and quantity.
B)an increase in price and a decrease in quantity.
C)a decrease in price and an increase in quantity.
D)a decrease in both price and quantity.

Question 44

If the price of good X is $100 and the price of good Y is $25, it follows that the relative price of one unit of good X is _____________ unit(s)of good Y.

A)1.00
B)4.00
C)0.25
D)1.33
E)0.75

Question 45

If the price of good X is $100 and the price of good Y is $40, it follows that the relative price of one unit of good Y is ___________ unit(s)of good X.

A)0.40
B)0.20
C)2.50
D)4.00
E)There is not enough information to answer the question.

Question 46

Situation 4-1 During the winter of 1973-74, a general system of wage and price controls (including a price ceiling on gasoline)was in force in the United States. At the beginning of 1974, some oil-producing countries imposed an oil embargo (a legal prohibition on commerce)on the West. In the spring of 1974, price controls were abolished.
Refer to Situation 4-1. Before the oil embargo, the price ceiling on gasoline had no noticeable effect on the market. What is the most likely explanation for this?

A)The equilibrium price of gasoline was probably below the price ceiling.
B)The demand curve for gasoline in the 1970s was vertical.
C)The supply curve for gasoline in the 1970s was vertical.
D)The equilibrium price of gasoline was probably above the price ceiling.

Question 47

Exhibit 4-3
Refer to Exhibit 4-3. If price P₃ is a price ceiling, then

A)the price ceiling does not have an effect on the market for good X.
B)the price at which exchange takes place is P₃.
C)there is a shortage in the market for good X.

Question 48

Exhibit 4-3
Refer to Exhibit 4-3. If price P₁ is a price floor, then

A)the quantity exchanged is Q_1.
B)there is a surplus in the market for good X.
C)it is the lowest price that can legally be charged in the market for good X.
D)the market is in equilibrium at price P₁.

Question 49

Exhibit 4-3
Refer to Exhibit 4-3. Suppose that the seller creates a tie-in sale between goods X and Y. If P₁ is a price ceiling on good X, the highest price buyers would be willing to pay for good Y is

A)P₁.
B)P₂.
C)P₃.
D)P₃ - P₁.
E)P₁ + P₂.

Question 50

Situation 4-1 During the winter of 1973-74, a general system of wage and price controls (including a price ceiling on gasoline)was in force in the United States. At the beginning of 1974, some oil-producing countries imposed an oil embargo (a legal prohibition on commerce)on the West. In the spring of 1974, price controls were abolished.
Refer to Situation 4-1. An economist would have most likely predicted that the oil embargo imposed in 1974 would result in a

A)leftward shift in the supply (curve)of gasoline.
B)rightward shift in the supply (curve)of gasoline.
C)leftward shift in the demand (curve)for gasoline.
D)rightward shift in the demand (curve)for gasoline.

Question 51

Situation 4-1 During the winter of 1973-74, a general system of wage and price controls (including a price ceiling on gasoline)was in force in the United States. At the beginning of 1974, some oil-producing countries imposed an oil embargo (a legal prohibition on commerce)on the West. In the spring of 1974, price controls were abolished.
Refer to Situation 4-1. Because price controls were in effect at the time the embargo occurred, an economist would have most likely predicted that

A)the number of dollars one would need to pay at the pump (legally)for a full tank of gasoline would increase sharply.
B)the number of dollars one would need to pay at the pump (legally)for a full tank of gasoline would decline sharply.
C)nonprice-rationing devices, such as long waiting lines and black markets, would appear.
D)a surplus of gasoline would result.

Question 52

Exhibit 4-3
Refer to Exhibit 4-3. The maximum (per-unit)amount buyers are willing to pay to purchase Q₁ units is

A)P₁.
B)P₂.
C)P₃.
D)P₁ + P₂.
E)P₃ - P₁.

Question 53

Exhibit 4-4
Refer to Exhibit 4-4. Which of the following statements is false ?

A)Graph (1): A price ceiling set at P₂ would not have an impact on the market.
B)Graph (2): As supply increases, equilibrium price remains constant.
C)Graph (3): As demand increases, equilibrium quantity remains constant.
D)Graph (4): As supply increases, equilibrium quantity increases.

Question 54

Exhibit 4-3
Refer to Exhibit 4-3. Which of the following is true?

A)If price P₁ is set as a price ceiling, the price ceiling will have an effect on the market for good X.
B)If price P₁ is set as a price floor, the price floor will have an effect on the market for good X.
C)Price P₁ is the equilibrium price for good X.
D)If price P₁ is set as a price floor, then it is the highest price that can legally be charged in the market for good X.

Question 55

If the price of good X is $90 and the price of good Y is $30, it follows that the relative price of one unit of good Y is ___________ unit(s)of good X.

A)0.33
B)1.33
C)3.00
D)2.00
E)There is not enough information to answer the question.

Question 56

There are two goods in the economy, apples and bread. The relative price of apples has increased. This could be due to

A)an increase in the absolute price of apples, ceteris paribus .
B)a simultaneous decrease in the absolute price of apples and an increase in the absolute price of bread, ceteris paribus .
C)a decrease in the absolute price of apples, ceteris paribus .
D)an increase in the absolute price of bread, ceteris paribus .

Question 57

If the current market price of good Z is below the equilibrium price of good Z

A)it must be because the government has imposed a price ceiling in the market for good Z.
B)there is a shortage of good Z.
C)there is a surplus of good Z.
D)demand must necessarily decrease to restore equilibrium.

Question 58

Exhibit 4-3
Refer to Exhibit 4-3. If price P₁ is a price ceiling, then

A)the quantity exchanged is Q₃.
B)there is a surplus in this market.
C)it is the highest price that can legally be charged in this market.
D)it is the lowest price that can legally be charged in this market.

Question 59

Exhibit 4-4
Refer to Exhibit 4-4. Which of the following is false ?

A)Graph (1): There would be a shortage of the good if a price floor is set at P₃.
B)Graph (2): As supply increases, equilibrium quantity remains constant.
C)Graph (3): As demand increases, equilibrium price remains constant.
D)Graph (4): As supply changes, equilibrium price stays the same.

Question 60

Exhibit 4-3
Refer to Exhibit 4-3. Which of the following is true?

A)If price P₃ is set as a price ceiling it will have an effect on the market for good X.
B)If price P₃ is set as a price floor it will have an effect on the market for good X.
C)Price P₃ is the equilibrium price for good X.
D)Price P₃ is the highest price that can legally be charged in the market for good X.

Question 61

If the absolute price of a new car is $30,000 and the relative price of a laptop computer in terms of cars is 1\30 of a car, it follows that the absolute price of the laptop is

A)$10,000.
B)$1,000.
C)$3,000.
D)$2,000.
E)$1,500.

Question 62

If the minimum wage law sets a price floor above the equilibrium wage in the market for unskilled labor, then the

A)minimum wage will create a surplus of unskilled labor.
B)minimum wage will create a shortage of unskilled labor.
C)minimum wage will not impact the unskilled labor market.
D)unskilled labor market will change, but we cannot be certain how.

Question 63

If the minimum wage law sets a wage floor below the equilibrium wage in the market for unskilled labor, then the

A)minimum wage will create a surplus of unskilled labor.
B)minimum wage will create a shortage of unskilled labor.
C)minimum wage will not impact the unskilled labor market.
D)unskilled labor market will change, but we cannot be certain how.

Question 64

The number of unskilled workers employed before and after an increase in the minimum wage is found to be the same. This means

A)the change in minimum wage created a surplus of workers in the unskilled labor market.
B)the change in minimum wage created a shortage of work
C)the minimum wage could still be below the equilibrium wage for unskilled labor.
D)changes in minimum wage never have an impact on the unskilled labor market.

Question 65

A minimum wage law (that sets the minimum wage above the equilibrium wage)can be expected to

A)clear the market for unskilled workers.
B)increase the number of unskilled workers employed.
C)increase the number of firms in those industries where the law is effective.
D)reduce the number of unskilled workers employed and\or reduce the number of hours worked by unskilled workers.

Question 66

Exhibit 4-7
Refer to Exhibit 4-7. How many fewer persons work in the unskilled labor market at the minimum wage (W_M)than at the equilibrium wage (W₁)?

A)(N₂ - N₁)persons
B)(N₁ - N₃)persons
C)(N₂ - N₃)persons
D)N₃ persons

Question 67

Exhibit 4-5

Refer to Exhibit 4-5. If a free market were allowed in the transplanted kidney market, then the equilibrium price would be P₂. The number of kidneys transplanted would increase by _________ compared to the number transplanted at a price ceiling of P= $0.

A)(Q₃ - Q₁)
B)(Q₃ - Q₂)
C)(Q₂ - Q₁)
D)Q₂

Question 68

At the minimum wage (set above the equilibrium wage),

A)all individuals who end up working are paid less than if they were paid the equilibrium wage.
B)none of the workers will lose there jobs or find themselves working fewer hours.
C)none of the individuals who end up working are paid more than if they were paid the equilibrium wage.
D)there will be fewer people working (or fewer labor hours demanded)than at the equilibrium wage.

Question 69

If the absolute price of a computer is $600 and the relative price of a dining room table is 3 computers, it follows that the absolute price of a dining room table is

A)$180.
B)$200.
C)$3,000.
D)$30,000.
E)$1,800.

Question 70

Exhibit 4-6

Refer to Exhibit 4-6. At a wage of $7, there will be a __________ of unskilled workers equal to __________ thousand workers.

A)shortage; 10
B)surplus; 20
C)surplus; 10
D)shortage; 20
E)surplus; 15

Question 71

Exhibit 4-5

Refer to Exhibit 4-5. Suppose the government imposes a price ceiling at P = $0 for transplanted kidneys. The result will be a

A)shortage of kidneys equal to (Q₃ - Q₁).
B)surplus of kidneys equal to (Q₃ - Q₁).
C)shortage of kidneys equal to (Q₂ - Q₁).
D)surplus of kidneys equal to (Q₂ - Q₁).

Question 72

Exhibit 4-6

Refer to Exhibit 4-6. Suppose the minimum wage is set at $7. The result will be

A)a surplus of unskilled workers.
B)a shortage of unskilled workers.
C)no effect on the market for unskilled labor.
D)a change in the equilibrium wage rate.

Question 73

If the relative price of one unit of good X is 5 units of good Y, then it follows that the absolute price of good X can be __________ and the absolute price of good Y can be __________.

A)$20,000; $10,000
B)$40,000; $8,000
C)$30,000; $5,0000
D)$5,000; $40,000

Question 74

If the relative price of one unit of good Y is 0.25 units of good Z, then it follows that the absolute price of good Z can be __________ and the absolute price of good Y can be __________.

A)$4,000; $2,000
B)$1,000; $2,000
C)$2,000; $1,000
D)$1,000; $250

Question 75

A shortage of kidneys (for transplants)results from

A)the legal price being set below the equilibrium price.
B)the legal price being set above the equilibrium price.
C)a price floor being set in the kidney market at P = $0, assuming the equilibrium price is greater than $0.
D)a price ceiling being set in the kidney market at P = $10,000, assuming the equilibrium price is equal to $0.

Question 76

If the minimum wage is set above the equilibrium wage, then

A)more people will work than at the equilibrium wage.
B)the same number of people will work as at the equilibrium wage.
C)fewer people will want to work than at the equilibrium wage.
D)there will be fewer labor hours purchased by employers than at the equilibrium wage.

Question 77

Exhibit 4-7
Refer to Exhibit 4-7. How many unskilled workers do firms want to employ at the minimum wage?

A)N₂
B)N₁
C)N₃
D)N₁ + N₃

Question 78

Which of the following statement is false  based on information presented in the textbook?

A)There is evidence of a shortage in the market for kidneys (for transplants).
B)The waiting list for transplanted kidneys is used as a non-price rationing device.
C)There is a price ceiling in the market for transplanted kidneys at a price of $0.
D)In the market for transplanted kidneys the legal price is the same as the equilibrium price.
E)​It is currently unlawful to buy or sell kidneys at any positive price.

Question 79

Exhibit 4-7
Refer to Exhibit 4-7. The number of unskilled workers who want to work at the minimum wage is

A)N₃.
B)N₁.
C)N₂.
D)N₂ - N₁.

Question 80

Exhibit 4-6

Refer to Exhibit 4-6. Suppose the minimum wage is set at $5. The result will be

A)unemployment.
B)a shortage of unskilled labor.
C)no impact on the unskilled labor market.
D)a prolonged surplus of unskilled labor.