Deck 6: Supply, demand, and Government Policies

Question 1

Price controls

A)always produce an equitable outcome.
B)always produce an efficient outcome.
C)can generate inequities of their own.
D)produce revenue for the government.

Answer 1

C

Question 2

A legal minimum price at which a good can be sold is

A)exemplified by rent-control laws.
B)usually intended to enhance efficiency in a market.
C)called a price ceiling.
D)called a price floor.

Answer 2

D

Question 3

Price controls are usually enacted

A)as a means of raising revenue for public purposes.
B)when policymakers believe that the market price of a good or service is unfair to buyers or sellers.
C)when policymakers detect inefficiencies in a market.
D)All of the above are correct.

Answer 3

B

Question 4

A price ceiling is binding when it is set

A)above the equilibrium price, causing a shortage.
B)above the equilibrium price, causing a surplus.
C)below the equilibrium price, causing a shortage.
D)below the equilibrium price, causing a surplus.

Question 5

The presence of price controls in a market usually is an indication that

A)an insufficient quantity of a good or service was being produced in that market to meet the public's need.
B)the usual forces of supply and demand were not able to establish an equilibrium price in that market.
C)policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers.
D)policymakers correctly believed that, in that market, price controls would generate no inequities of their own.

Question 6

A price ceiling that is not binding will

A)cause a surplus in the market.
B)cause a shortage in the market.
C)cause the market to be less efficient than it would be without the price ceiling.
D)have no effect on the market price.

Question 7

Policymakers sometimes are attracted to price controls because

A)they view the market's outcome as inefficient.
B)they view the market's outcome as unfair.
C)it is politically popular to impose price controls in markets in which the demand for the good or service is inelastic.
D)they are required to do so under the Employment Act of 1946.

Question 8

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

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

Question 9

A price ceiling

A)is a legal maximum on the price at which a good can be sold.
B)is often imposed in markets in which "cutthroat competition" would prevail without a price ceiling.
C)is often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price ceiling.
D)All of the above are correct.

Question 10

A price floor

A)is a legal minimum on the price at which a good can be sold.
B)can result when sellers of a good are successful in their attempts to convince the government that the market outcome without a price floor is unfair to them.
C)can create inequities in a market.
D)All of the above are correct.

Question 11

Figure 6-1

Refer to Figure 6-1.A binding price ceiling is shown in

A)panel (a) but not panel (b).
B)panel (b) but not panel (a).
C)both panel (a) and panel (b).
D)neither panel (a) nor panel (b).

Question 12

A price ceiling will be binding only if it is set

A)equal to equilibrium price.
B)above equilibrium price.
C)below equilibrium price.
D)none of the above; a price ceiling is never binding.

Question 13

Figure 6-1

Refer to Figure 6-1.In which panel(s)of the figure would there be a shortage of the good at the ceiling price?

A)panel (a) but not panel (b)
B)panel (b) but not panel (a)
C)panel (a) and panel (b)
D)neither panel (a) nor panel (b)

Question 14

Which of the following is the most likely explanation for the imposition of a price floor in the market for corn?

A)Policymakers have studied the effects of the price floor carefully and they recognize that the price floor is advantageous for society as a whole.
B)Buyers and sellers of corn have agreed that the price floor is good for both of them and have therefore pressured policy makers into enacting the price floor.
C)Buyers of corn, recognizing that the price floor is good for them, have pressured policy makers into enacting the price floor.
D)Sellers of corn, recognizing that the price floor is good for them, have pressured policy makers into enacting the price floor.

Question 15

To say that a price ceiling is binding is to say that the price ceiling

A)results in a scarcity.
B)is set above the equilibrium price.
C)results in excess demand.
D)All of the above are correct.

Question 16

Suppose a price ceiling is not binding;this means that

A)the equilibrium price is above the price ceiling.
B)the equilibrium price is below the price ceiling.
C)it has no legal enforcement mechanism.
D)people are finding a way to circumvent the law.

Question 17

Policymakers use taxes

A)to raise revenue for public purposes, but not to influence market outcomes.
B)both to raise revenue for public purposes and to influence market outcomes.
C)when they realize that price controls alone are insufficient to correct market inequities.
D)only in those markets in which the burden of the tax falls clearly on the sellers.

Question 18

Figure 6-1

Refer to Figure 6-1.The situation in panel (a)may be described as one in which

A)the price ceiling is not binding.
B)the price "ceiling" really functions as a price floor.
C)a surplus of the good will be observed.
D)All of the above are correct.

Question 19

When,in a particular market,the law of demand and the law of supply both apply,the imposition of a binding price ceiling in that market causes quantity demanded to be

A)greater than quantity supplied.
B)less than quantity supplied.
C)equal to quantity supplied.
D)Any of the above is possible.

Question 20

A shortage results when

A)a binding price ceiling is imposed.
B)a binding price floor is imposed.
C)a price ceiling is imposed but it is not binding.
D)a price floor is imposed but it is not binding.

Question 21

Figure 6-3

Refer to Figure 6-3.In panel (b),with the price floor in effect,there will be

A)a shortage of wheat.
B)equilibrium in the market.
C)a surplus of wheat.
D)an excess demand for wheat.

Question 22

A price floor is not binding if

A)the price floor is higher than the equilibrium price of the good.
B)the quantity of the good demanded with the price floor is less than the quantity demanded of the good without the price floor.
C)the quantity of the good supplied with the price floor is less than the quantity supplied of the good without the price floor.
D)All of the above are correct.

Question 23

A binding price floor causes

A)excess demand.
B)a shortage.
C)a surplus.
D)quantity demanded to exceed quantity supplied.

Question 24

Suppose the government has imposed a price ceiling on televisions.Which of the following events could transform the price ceiling from one that is not binding into one that is binding?

A)Firms take advantage of an advance in technology that reduces the amount of labor necessary to produce televisions.
B)The number of firms selling televisions decreases.
C)Consumers' income decreases, and televisions are a normal good.
D)All of the above are correct.

Question 25

When a price floor is binding,the equilibrium price is

A)lower than the price floor.
B)higher than the price floor.
C)equal to the price floor.
D)It is impossible to compare the equilibrium price with the price floor.

Question 26

A price floor is binding if it

A)is set lower than the equilibrium market price.
B)results in an observed price that is the same as the equilibrium price.
C)leads to a surplus.
D)is strictly enforced by the government.

Question 27

Figure 6-2

Refer to Figure 6-2.If the government imposes a price ceiling of $8 in this market,the result would be a

A)surplus of 10.
B)surplus of 20.
C)shortage of 10.
D)shortage of 20.

Question 28

If a price ceiling is a binding constraint on the market,

A)the equilibrium price must be below the price ceiling.
B)there is excess supply.
C)sellers cannot sell all they want to sell at the price ceiling.
D)buyers cannot buy all they want to buy at the price ceiling.

Question 29

Figure 6-2

Refer to Figure 6-2.Which of the following statements is correct?

A)A price ceiling set at $12 would be binding, but a price ceiling set at $8 would not be binding.
B)A price floor set at $8 would be binding, but a price ceiling set at $8 would not be binding.
C)A price ceiling set at $9 would result in an excess supply.
D)A price floor set at $11 would result in a surplus.

Question 30

Figure 6-2

Refer to Figure 6-2.If the government imposes a price ceiling of $12 in this market,the result would be

A)a surplus of 10.
B)a surplus of 20.
C)a shortage of 20.
D)neither a surplus nor a shortage.

Question 31

An example of a price floor is

A)the regulation of gasoline prices in the U.S.in the 1970s.
B)rent control.
C)the minimum wage.
D)any restriction on price that leads to a shortage.

Question 32

A binding price floor in a market is set

A)above equilibrium price and causes a shortage.
B)above equilibrium price and causes a surplus.
C)below equilibrium price and causes a surplus.
D)below equilibrium price and causes a shortage.

Question 33

When a binding price ceiling is imposed to benefit buyers,a result is that

A)every buyer in the market benefits.
B)every seller in the market benefits, but the overall benefit to sellers is smaller than the overall benefit to buyers.
C)every buyer in the market benefits and every seller in the market is harmed.
D)some buyers will not be able to buy any amount of the good.

Question 34

Figure 6-2

Refer to Figure 6-2.A binding price ceiling would be the result if the price ceiling were set at

A)$14.
B)$12.
C)$10.
D)$8.

Question 35

Figure 6-3

Refer to Figure 6-3.Which of the panels represents a binding price floor?

A)panel (a) but not panel (b)
B)panel (b) but not panel (a)
C)panel (a) and panel (b)
D)neither panel (a) nor panel (b)

Question 36

When a price ceiling is imposed in a market and the ceiling is binding,

A)price no longer serves as a rationing device.
B)the quantity supplied at the price ceiling exceeds the quantity that would have been supplied without the price ceiling.
C)buyers and sellers both benefit in equal measure.
D)buyers and sellers both are harmed in equal measure.

Question 37

Figure 6-2

Refer to Figure 6-2.In which of the following cases would sellers have to develop a rationing mechanism?

A)A price ceiling is set at $8.
B)A price ceiling is set at $12.
C)A price floor is set at $8.
D)A price floor is set at $10.

Question 38

Figure 6-2

Refer to Figure 6-2.If the government imposes a price floor of $14 in this market,the result would be a

A)surplus of 20.
B)surplus of 40.
C)shortage of 20.
D)shortage of 40.

Question 39

Which of the following statements is correct?

A)A price ceiling is not binding when the price ceiling is set above the equilibrium price.
B)A price floor is not binding when the price floor is set below the equilibrium price.
C)A binding price ceiling causes a shortage and a binding price floor causes a surplus.
D)All of the above are correct.

Question 40

Which of the following observations would be consistent with a binding price ceiling in a market?

A)A smaller quantity of the good is bought and sold after the price ceiling becomes effective than before the price ceiling became effective.
B)A smaller quantity of the good is demanded after the price ceiling becomes effective than before the price ceiling became effective.
C)A larger quantity of the good is supplied after the price ceiling becomes effective than before the price ceiling became effective.
D)All of the above are correct.

Question 41

Figure 6-5

Refer to Figure 6-5.In this market,which of the following price controls would be binding?

A)a price ceiling of $2.00, and it would cause a shortage
B)a price ceiling of $5.00, and it would cause a surplus
C)a price floor of $2.00, and it would cause a shortage
D)All of the above are correct.

Question 42

Price ceilings and price floors that are binding

A)are desirable because they make markets more efficient and more equitable.
B)cause surpluses and shortages to persist since price cannot adjust to the market equilibrium price.
C)can have the effect of restoring a market to equilibrium.
D)are imposed because they can make the poor in the economy better off without causing adverse effects.

Question 43

If a binding price ceiling were imposed in the computer market,

A)the quantity of computers demanded would increase.
B)the quantity of computers supplied would decrease.
C)a shortage of computers would develop.
D)All of the above are correct.

Question 44

Figure 6-5

Refer to Figure 6-5.When a certain price control is imposed in this market,the resulting quantity of the good that is actually bought and sold is such that buyers are willing and able to pay a maximum of P₁ dollars per unit for that quantity and sellers are willing and able to accept a minimum of P₂ dollars per unit for that quantity.If P₁ - P₂ = $3.00,then the price control in question is

A)a price ceiling of $2.00.
B)a price ceiling of $5.00.
C)a price floor of $5.00.
D)either a price ceiling of $2.00 or a price floor of $5.00.

Question 45

Figure 6-4

Refer to Figure 6-4.For a price ceiling to be binding,it would have to be set at

A)any price below $6.00.
B)a price between $4.00 and $6.00.
C)a price between $6.00 and $8.00.
D)any price above $6.00.

Question 46

An outcome that can result from either a price ceiling or a price floor is

A)an enhancement of efficiency.
B)undesirable rationing mechanisms.
C)excess supply.
D)excess demand.

Question 47

Which of the following observations would be consistent with a binding price floor in a market?

A)A smaller quantity of the good is bought and sold after the price floor becomes effective than before the price floor became effective.
B)A smaller quantity of the good is demanded after the price floor becomes effective than before the price floor became effective.
C)A larger quantity of the good is supplied after the price floor becomes effective than before the price floor became effective.
D)All of the above are correct.

Question 48

Suppose the equilibrium price of a physical examination ("physical")by a doctor is $200,and the government imposes a price ceiling of $150 per physical.As a result of the price ceiling,

A)the demand curve for physicals shifts to the right.
B)the supply curve for physicals shifts to the left.
C)the quantity demanded of physicals increases and the quantity supplied of physicals decreases.
D)the number of physicals performed will increase.

Question 49

Figure 6-4

Refer to Figure 6-4.Which of the following price controls would cause a shortage of 10 units of the good?

A)a price ceiling of $5.50
B)a price floor of $5.50
C)a price ceiling of $6.50
D)a price floor of $6.50

Question 50

Figure 6-4

Refer to Figure 6-4.Suppose a price floor of $7.00 is imposed.As a result,

A)buyers' total expenditure on the good decreases by $20.00.
B)the supply curve will shift to the left so as to now pass through the point (Q = 40, P = $7.00).
C)the quantity of the good demanded decreases by 20 units.
D)the price of the good continues to serve as the rationing mechanism.

Question 51

Other than OPEC,the shortage of gasoline in the U.S.in the 1970s could also be blamed on

A)a sharp increase in the demand for gasoline that was brought on by the Vietnam War.
B)the government's policy of maintaining a price ceiling on gasoline.
C)an indifference among U.S.consumers toward conservation.
D)the lack of substitutes for crude oil.

Question 52

If a binding price ceiling were imposed in the computer market,

A)the demand for computers would increase.
B)the supply of computers would decrease.
C)a shortage of computers would develop.
D)All of the above are correct.

Question 53

Figure 6-4

Refer to Figure 6-4.Suppose a price ceiling of $4.50 is imposed.As a result,

A)there is a shortage of 15 units of the good.
B)the demand curve will shift to the left so as to now pass through the point (Q = 35, P = $4.50).
C)the situation is very much like the one created by a binding minimum wage.
D)the quantity of the good that is bought and sold is the same as it would have been had a price floor of $7.50 been imposed.

Question 54

An outcome that can result from either a price ceiling or a price floor is

A)a surplus in the market.
B)a shortage in the market.
C)a nonbinding price control.
D)long lines of frustrated buyers.

Question 55

When policymakers set prices by legal decree,they

A)are usually following the advice of mainstream economists.
B)are usually improving the organization of economic activity.
C)are obscuring the signals that normally guide the allocation of society's resources.
D)are demonstrating a willingness to sacrifice equity for the sake of a gain in efficiency.

Question 56

Figure 6-5

Refer to Figure 6-5.If the government imposes a price ceiling of $2.00 in this market,the result is a

A)surplus of 30 units of the good.
B)shortage of 20 units of the good.
C)shortage of 30 units of the good.
D)shortage of 50 units of the good.

Question 57

Figure 6-5

Refer to Figure 6-5.The price of the good would continue to serve as the rationing mechanism if

A)a price ceiling of $4.00 were imposed.
B)a price ceiling of $5.00 were imposed.
C)a price floor of $3.00 were imposed.
D)All of the above are correct.

Question 58

In the 1970s,long lines at gas stations in the United States were primarily a result of the fact that

A)OPEC raised the price of crude oil in world markets.
B)U.S.gasoline producers raised the price of gasoline.
C)the U.S.government maintained a price ceiling on gasoline.
D)Americans typically commute long distances.

Question 59

Figure 6-4

Refer to Figure 6-4.If the government imposes a price ceiling in this market at a price of $5.00,the result would be a

A)shortage of 20 units.
B)shortage of 10 units.
C)surplus of 20 units.
D)surplus of 10 units.

Question 60

Rationing by long lines is

A)inefficient, because it wastes buyers' time.
B)efficient, because those who are willing to wait the longest get the goods.
C)the only way scarce goods can be rationed.
D)only necessary if price ceilings are not binding.

Question 61

Rent control

A)serves as an example of how a social problem can be alleviated or even solved by government policies.
B)serves as an example of a price floor.
C)is regarded by most economists as an inefficient way of helping the poor.
D)is the most efficient way to allocate scarce housing resources.

Question 62

Over time,housing shortages caused by rent control

A)increase, because the demand for, and supply of, housing are less elastic in the long run.
B)increase, because the demand for, and supply of, housing are more elastic in the long run.
C)decrease, because the demand for, and supply of, housing are less elastic in the long run.
D)decrease, because the demand for, and supply of, housing are more elastic in the long run.

Question 63

Economists blame the long lines at gasoline stations in the U.S.in the 1970s on

A)U.S.government regulations pertaining to the price of gasoline.
B)the Organization of Petroleum Exporting Countries (OPEC).
C)major oil companies operating in the U.S.
D)consumers who bought gasoline frequently, even when their cars' gasoline tanks were nearly full.

Question 64

One economist has argued that rent control is "the best way to destroy a city,other than bombing." Why would an economist say this?

A)He fears that low rents will cause low-income people to move into the city, reducing the quality of life for other people.
B)He fears that rent control will benefit landlords at the expense of tenants, increasing inequality in the city.
C)He fears that rent controls will cause a construction boom, which will make the city crowded and more polluted.
D)He fears that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city.

Question 65

Under rent control,landlords cease to be responsive to tenants' concerns about the quality of the housing because

A)with shortages and waiting lists, they have no incentive to maintain and improve their property.
B)they become resigned to the fact that many of their apartments are going to be vacant at any given time.
C)with rent control the government guarantees landlords a minimal level of profit.
D)with rent control it becomes the government's responsibility to maintain rental housing.

Question 66

Which of the following is not a rationing mechanism used by landlords in cities with rent control?

A)waiting lists
B)race
C)price
D)bribes

Question 67

Figure 6-6

Refer to Figure 6-6.When the price ceiling applies in this market and the supply curve for gasoline shifts from S₁ to S₂,the resulting quantity of gasoline that is bought and sold is

A)less than Q₃.
B)Q₃
C)between Q₁ and Q₃.
D)at least Q₁.

Question 68

Figure 6-7

Refer to Figure 6-7.Which panel(s)best represent(s)a non-binding rent control in the long run?

A)panel (a)
B)panel (b)
C)neither panel
D)either panel (a) or panel (b), depending upon local housing conditions

Question 69

Economists generally believe that rent control is

A)an efficient and equitable way to help the poor.
B)not efficient, but the best available means of solving a serious social problem.
C)a highly inefficient way to help the poor raise their standard of living.
D)an efficient way to allocate housing, but not a good way to help the poor.

Question 70

When OPEC raised the price of crude oil in the 1970s,it caused the

A)demand for gasoline to increase.
B)demand for gasoline to decrease.
C)supply of gasoline to increase.
D)supply of gasoline to decrease.

Question 71

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 rental housing.
D)higher rent and a surplus of rental housing.

Question 72

The long-run effects of rent controls are a good illustration of the principle that

A)society faces a short-run tradeoff between unemployment and inflation.
B)the cost of something is what you give up to get it.
C)people respond to incentives.
D)government can sometimes improve on market outcomes.

Question 73

When OPEC raised the price of crude oil in the 1970s,it caused the

A)supply of gasoline to decrease.
B)quantity of gasoline demanded to decrease.
C)equilibrium price of gasoline to increase.
D)All of the above are correct.

Question 74

Which of the following statements about the effects of rent control is correct?

A)The short-run effect of rent control is a surplus of apartments, and the long-run effect of rent control is a shortage of apartments.
B)The short-run effect of rent control is a relatively small shortage of apartments, and the long-run effect of rent control is a larger shortage of apartments.
C)In the long run, rent control leads to a shortage of apartments, and the quality of available apartments is improved by rent control.
D)The effects of rent control are very noticeable to the public in the short run, because the primary effects of rent control occur very quickly.

Question 75

Under rent control,bribery is a mechanism to

A)bring the total price of an apartment (including the bribe) closer to the equilibrium price.
B)allocate housing to the poorest individuals in the market.
C)force the total price of an apartment (including the bribe) to be less than the market price.
D)allocate housing to the most deserving tenants.

Question 76

In the housing market,rent control causes

A)quantity supplied to fall and quantity demanded to fall.
B)quantity supplied to fall and quantity demanded to rise.
C)quantity supplied to rise and quantity demanded to fall.
D)quantity supplied to rise and quantity demanded to rise.

Question 77

Figure 6-6

Refer to Figure 6-6.When the price ceiling applies in this market and the supply curve for gasoline shifts from S₁ to S₂,

A)the price will increase to P₃.
B)a surplus will occur at the new market price of P₂.
C)the market price will stay at P₁ due to the price ceiling.
D)a shortage will occur at the price ceiling of P₂.

Question 78

Figure 6-7

Refer to Figure 6-7.Which panel best represents a binding rent control in the short run?

A)panel (a)
B)panel (b)
C)neither panel
D)either panel (a) or panel (b), depending upon local housing conditions

Question 79

In the United States,before OPEC increased the price of crude oil in 1973,there was

A)no price ceiling on gasoline.
B)a price ceiling on gasoline but it was not binding.
C)a price ceiling on gasoline and it was binding.
D)a price floor on gasoline but it was not binding.

Question 80

Figure 6-6

Refer to Figure 6-6.Which of the following statements best relates the figure to the events of the 1970s?

A)Buyers of gasoline paid a price of P₁ before 1973; they paid a price of P₂ after OPEC increased the price of crude oil in 1973, and there was a shortage of gasoline at that price.
B)Buyers of gasoline paid a price of P₁ before 1973; they paid a price of P₃ after OPEC increased the price of crude oil in 1973, and there was a shortage of gasoline at that price.
C)Buyers of gasoline paid a price of P₂ before 1973; they paid a price of P₃ after OPEC increased the price of crude oil in 1973, with no shortage of gasoline at that price.
D)The price ceiling was binding before 1973; the price ceiling was no longer binding after OPEC increased the price of crude oil in 1973.