Deck 6: Government Actions in Markets

Question 1

Use the figure below to answer the following questions.

Figure 6.1.1
Refer to Figure 6.1.1.If the demand for rental housing increases and the demand curve shifts rightward from D₀ to D₁, and there is a strictly enforced rent ceiling of $150 per room,

A)the number of rooms rented will increase to 2,000.
B)the number of rooms rented is 1,500.
C)there is a housing shortage of 500 rooms.
D)the number of rooms rented decreases to 1,000.
E)both B and C

Answer 1

E

Question 2

In an unregulated housing market with no rent ceiling,

A)marginal social cost is greater than marginal social benefit.
B)marginal social benefit is greater than marginal social cost.
C)marginal social benefit equals marginal social cost.
D)marginal social benefit is negative.
E)marginal social cost is negative.

Answer 2

C

Question 3

In an unregulated housing market with no rent ceiling,

A)scarce housing resources are allocated inefficiently.
B)scarce housing resources are allocated efficiently.
C)tenants pay a lower rent compared to what they pay in a market with an effective rent ceiling.
D)landlords receive less compared to what they receive in a market with an effective rent ceiling.
E)consumer surplus equals producer surplus.

Answer 3

B

Question 4

An effective rent ceiling

A)increases consumer surplus.
B)increases producer surplus.
C)creates a deadweight loss.
D)decreases the supply of housing.
E)increases the supply of housing.

Question 5

When a price ceiling is set below the equilibrium price,

A)the demand curve shifts leftward.
B)the quantity supplied exceeds the quantity demanded.
C)the quantity supplied equals the quantity demanded.
D)the supply curve shifts rightward.
E)the quantity demanded exceeds the quantity supplied.

Question 6

A price ceiling set below the equilibrium price will result in

A)excess supply.
B)excess demand.
C)the equilibrium price.
D)an increase in supply.
E)a decrease in demand.

Question 7

Daisy and Donald live in a community with rent ceilings.Both are looking for an apartment to rent.Daisy has a job paying $10 per hour and Donald has a job paying $8 per hour.Both value an apartment equally.What is the most likely outcome?

A)Daisy will spend more time than Donald searching for an apartment.
B)Donald will spend more time than Daisy searching for an apartment.
C)Both of them will spend the same amount of time searching for an apartment.
D)Daisy will find the apartment.
E)Donald will find the apartment.

Question 8

The time spent looking for someone with whom to do business is called

A)elasticity of time.
B)market time.
C)search activity.
D)opportunity time.
E)development time.

Question 9

Which one of the following is likely to be the outcome of a rent ceiling imposed below the equilibrium rent?

A)a black market for rent-controlled housing
B)long waiting lists of potential suppliers for rent-controlled housing
C)a surplus of housing
D)no search activity
E)Both A and B are correct.

Question 10

In an unregulated housing market with no rent ceiling, the rent is determined by the

A)landlords only.
B)tenants only.
C)government only.
D)market.
E)landlords, tenants, and the government.

Question 11

If a rent ceiling imposed by the government is greater than the equilibrium rent for housing, then

A)the supply of rental housing will increase.
B)a shortage of housing will occur.
C)a surplus of housing will occur.
D)the equilibrium rent will prevail as long as all else remains constant.
E)the equilibrium rent will rise.

Question 12

Use the figure below to answer the following questions.

Figure 6.1.2
Refer to Figure 6.1.2.If a rigorously enforced price ceiling is set at $10, then

A)100 units will be sold at a price of $20 each.
B)100 units will be sold at a price of $15 each.
C)150 units will be sold at a price of $15 each.
D)200 units will be sold at a price of $10 each.
E)100 units will be sold at a price of $10 each.

Question 13

Use the figure below to answer the following questions.

Figure 6.1.1
Refer to Figure 6.1.1.Suppose the demand for rental housing is shown by demand curve D₁, and there is a rent ceiling of $150 per room.What is the highest rent that would be charged in a black market?

A)$150 a month
B)$175 a month
C)$200 a month
D)$100 a month
E)cannot be determined from the graph, but we know it is greater than $200

Question 14

Use the figure below to answer the following questions.

Figure 6.1.2
Refer to Figure 6.1.2.What would be the maximum black market price of the good if a price ceiling is set at $10 a unit?

A)$10
B)$15
C)$20
D)50 goods sold at $10 and 50 goods sold at $20
E)50 goods sold at $10 and 50 goods sold at $15

Question 15

Use the figure below to answer the following questions.

Figure 6.1.1
Refer to Figure 6.1.1.Suppose the demand for rental housing is shown by demand curve D₁, and there is a rent ceiling of $150 per room.What is the highest amount that would be expended on search activity?

A)$200
B)$150
C)$100
D)$50
E)$0

Question 16

If the government imposes a maximum rent for housing that is above the equilibrium price, then you predict that

A)the law will have no effect in the market for housing.
B)the law will generate a shortage of housing.
C)the law will create a surplus of housing.
D)the demand curve for housing shifts rightward.
E)the supply curve of housing shifts leftward.

Question 17

An illegal market in which the equilibrium price exceeds the price ceiling is

A)a rental market.
B)a capital market.
C)a black market.
D)an efficient market.
E)a housing market.

Question 18

Use the figure below to answer the following questions.

Figure 6.1.1
Consider the market for rental housing illustrated in Figure 6.1.1 when the demand curve is D₀.The equilibrium in an unregulated market is

A)1,500 rooms rented at $150 a month.
B)1,500 rooms rented at $200 a month.
C)1,750 rooms rented at $175 a month.
D)1,750 rooms rented at $200 a month.
E)2,000 rooms rented at $150 a month.

Question 19

Which one of the following is not likely to be an outcome of a rent ceiling?

A)a black market for rent-controlled housing
B)long waiting lists of potential renters for rent-controlled housing
C)a short-run shortage of housing
D)a black market price below the rent ceiling
E)increased search activity for rent-controlled housing

Question 20

Use the figure below to answer the following questions.

Figure 6.1.1
Refer to Figure 6.1.1.If the demand for rental housing increases and the demand curve shifts rightward from D₀ to D₁, and the market is unregulated, the number of rooms rented is

A)1,500, and the rent rises to $200 a month.
B)2,000, and the rent is at its initial level.
C)1,750, and the rent rises to $175 a month.
D)2,000, and the rent rises to $200 a month.
E)1,750, and the rent rises to $200 a month.

Question 21

According to the fair rules view of fairness, a fair outcome in the housing market

A)is one that does not block voluntary exchanges of housing.
B)cannot be created in housing industry.
C)is one that allocates scarce housing resources to those who are willing and able to pay.
D)is one that allocates scarce housing resources by lottery.
E)is one that allocates scarce housing resources to the poorest.

Question 22

Use the table below to answer the following questions.
Table 6.2.1

Table 6.2.1 gives the supply and demand schedules for teenage labour in Genoa City.In an unregulated market,

A)there is no teenage unemployment and the wage rate is $6 per hour.
B)there is no teenage unemployment and the wage rate is $5 per hour.
C)teenage unemployment is 400 hours and the wage rate is $6 per hour.
D)teenage unemployment is 400 hours and the wage rate is $5 per hour.
E)the minimum wage is $7 per hour.

Question 23

A rent ceiling

A)results in a shortage of housing if the rent ceiling is below the equilibrium rent.
B)results in a surplus of housing if the rent ceiling is above the equilibrium rent.
C)always results in a shortage of housing.
D)always results in a surplus of housing.
E)Both A and B are correct.

Question 24

Use the figure below to answer the following questions.

Figure 6.2.1
Refer to Figure 6.2.1.If the minimum wage is set at $2 per hour, what is the level of unemployment in millions of hours?

A)50
B)40
C)20
D)10
E)0

Question 25

An effective rent ceiling

A)increases producer surplus.
B)results in a producer surplus of zero.
C)sometimes increases producer surplus and sometimes decreases producer surplus.
D)decreases producer surplus.
E)decreases the supply of housing.

Question 26

First-come, first-served allocates housing to those

A)whose names are on waiting lists.
B)who share similar views to the owner of the housing.
C)who are rich.
D)who are poor.
E)who are lucky.

Question 27

Suppose a minimum wage of $4 an hour is in force, resulting in unemployment of 10 million hours.Then the demand for labour increases such that supply and demand curves intersect at a wage rate of $5 per hour.What will happen to the equilibrium wage rate and employment?

A)The wage rate is $5 an hour and there will be no unemployment.
B)The wage rate is $5 an hour and there will be a surplus of labour.
C)The wage rate is $4 an hour and there will be a surplus of labour.
D)The wage rate is $4 an hour and there will be no unemployment.
E)The wage rate is $4 an hour and there will be unemployment.

Question 28

Use the table below to answer the following questions.
Table 6.2.1

Table 6.2.1 gives the supply and demand schedules for teenage labour in Genoa City.Suppose the Genoa City Council sets a minimum wage of $4 per hour.Teenage unemployment is ________ hours a week.

A)800
B)600
C)400
D)200
E)zero

Question 29

Use the figure below to answer the following questions.

Figure 6.2.1
Refer to Figure 6.2.1.What is the equilibrium wage rate per hour in an unregulated market?

A)$2
B)$3
C)$4
D)$5
E)$30

Question 30

Use the figure below to answer the following questions.

Figure 6.2.1
Refer to Figure 6.2.1.Suppose a $5 per hour minimum wage is in force.What is the lowest wage per hour an unemployed person would be willing to accept?

A)$2
B)$3
C)$4
D)$5
E)$1

Question 31

Discrimination allocates scarce housing

A)to those who are poor.
B)based on the self-interest of landlords.
C)to those who are lucky.
D)to those whose names are on waiting lists.
E)to those who are willing and able to pay.

Question 32

Use the table below to answer the following questions.
Table 6.2.1

Table 6.2.1 gives the supply and demand schedules for teenage labour in Genoa City.Suppose the Genoa City Council sets a minimum wage of $6 per hour.Teenage unemployment is ________ hours a week.

A)800
B)600
C)400
D)200
E)zero

Question 33

A lottery allocates housing to those

A)who are poor.
B)who share similar views to the owner of the housing.
C)who are rich.
D)whose names are on waiting lists.
E)who are lucky.

Question 34

When rent is not permitted to allocate scarce housing, what other mechanisms are available?

A)a lottery
B)first-come, first-served
C)discrimination
D)both A and B are correct
E)A, B and C are correct

Question 35

Use the figure below to answer the following questions.

Figure 6.2.1
Refer to Figure 6.2.1.If the minimum wage is set at $6 per hour, what is the level of unemployment in millions of hours?

A)50
B)40
C)20
D)10
E)0

Question 36

Use the table below to answer the following questions.
Table 6.1.1

Refer to Table 6.1.1, which gives the demand schedule and the supply schedule for the apartment market in Anytown, Alberta.If a rent ceiling of $300 is imposed in the apartment market, then

A)the maximum amount someone is willing to pay for an apartment in the black market is $500.
B)there is a surplus of 40 apartments.
C)the supply of apartments will increase.
D)the demand for apartments will decrease.
E)the quantity of apartments supplied is 60 units.

Question 37

Use the table below to answer the following questions.
Table 6.1.1

Refer to Table 6.1.1, which gives the demand schedule and the supply schedule for the apartment market in Anytown, Alberta.If a rent ceiling of $300 is imposed in the apartment market, then

A)there is a shortage of 40 apartments.
B)there is a surplus of 40 apartments.
C)the supply of apartments will increase.
D)the supply of apartments will decrease.
E)the quantity of apartments supplied is 60 units.

Question 38

Suppose the government introduces a ceiling on the fees that lawyers are permitted to charge.This fee ceiling

A)is always inefficient.
B)results in an inefficient use of resources when the ceiling is above the equilibrium fee.
C)results in an efficient use of resources when the ceiling is above the equilibrium fee.
D)results in an efficient use of resources when the ceiling is below the equilibrium fee.
E)is always efficient.

Question 39

According to the fair result view of fairness, a fair outcome in the housing market

A)is the one that blocks voluntary exchange of housing.
B)cannot be created in the housing industry.
C)is one that allocates scarce housing resources to those who are willing and able to pay.
D)is one that allocates scarce housing resources by lottery.
E)is one that allocates scarce housing resources to the poorest.

Question 40

Use the table below to answer the following questions.
Table 6.1.1

Refer to Table 6.1.1, which gives the demand schedule and the supply schedule for the apartment market in Anytown, Alberta.If a rent ceiling of $600 is imposed in the apartment market, then

A)there is a shortage of 80 apartments.
B)there is a surplus of 80 apartments.
C)the supply of apartments will increase.
D)the supply of apartments will decrease.
E)the quantity of apartments supplied is 60 units.

Question 41

Use the figure below to answer the following questions.

Figure 6.3.1
Refer to Figure 6.3.1 showing the market for frisbees before and after a tax is imposed.On each frisbee, the buyers' share of the tax is

A)$0.40.
B)$0.60.
C)$1.00.
D)$5.60.
E)$6.60.

Question 42

Use the table below to answer the following questions.
Table 6.2.1

Table 6.2.1 gives the supply and demand schedules for teenage labour in Genoa City.Suppose a new fast food restaurant opens and increases the quantity demanded of teenage labour by 400 hours per week at each wage rate.If the teenage labour market is unregulated, there is an increase in teenage employment to

A)1,000 hours per week and a wage of $5 per hour.
B)1,000 hours per week and a wage of $7 per hour.
C)800 hours per week and a wage of $6 per hour.
D)600 hours per week and a wage of $7 per hour.
E)400 hours per week and a wage of $7 per hour.

Question 43

Consider the effect of a minimum wage imposed in an unregulated labour market.Which of the following statements is correct? i. A minimum wage set above the equilibrium wage increases the quantity of labour supplied.
Ii. A minimum wage set above the equilibrium wage increases the supply of labour.
Iii. A minimum wage set above the equilibrium wage decreases the demand for labour.

A)i only
B)ii only
C)iii only
D)ii and iii only
E)i, ii, and iii

Question 44

An effective minimum wage ________ the firms' surplus and ________ the workers' surplus.

A)decreases; increases
B)increases; increases
C)decreases; decreases
D)increases; decreases
E)has no effect on; has no effect on

Question 45

The government sets a price floor for corn, which is above the equilibrium price of corn.As a result

A)the market for corn is efficient.
B)a shortage of corn occurs.
C)consumer surplus is maximized.
D)a deadweight loss is created.
E)the sum of consumer surplus and producer surplus is maximized.

Question 46

Which one of the following statements is false?

A)An effective minimum wage sets the wage rate above the equilibrium wage rate.
B)An effective rent ceiling sets the rent below the equilibrium rent.
C)An effective rent ceiling leads to a housing shortage.
D)An effective minimum wage is inefficient.
E)A minimum wage is a price ceiling in the labour market.

Question 47

Use the figure below to answer the following questions.

Figure 6.3.1
Refer to Figure 6.3.1 showing the market for frisbees before and after a tax is imposed.The tax on each frisbee is

A)$0.40.
B)$0.60.
C)$1.00.
D)$5.60.
E)$6.60.

Question 48

Use the figure below to answer the following questions.

Figure 6.3.1
Refer to Figure 6.3.1 showing the market for frisbees before and after a tax is imposed.Between 4,000 and 5,000 frisbees, supply is

A)inelastic.
B)unit elastic.
C)elastic.
D)perfectly elastic.
E)perfectly inelastic.

Question 49

Suppose the demand for CDs is elastic, but not perfectly elastic, and the supply is inelastic, but not perfectly inelastic.A tax on CDs is paid

A)equally by buyers and sellers.
B)mostly by sellers.
C)mostly by buyers.
D)by neither buyers nor sellers.
E)totally by sellers.

Question 50

Use the table below to answer the following questions.
Table 6.2.2

Refer to Table 6.2.2.What is the level of unemployment in millions of hours if the minimum wage is set at $3 per hour?

A)70
B)40
C)30
D)20
E)zero

Question 51

When a minimum wage is set above the equilibrium wage rate,

A)unemployment decreases.
B)job search activity decreases.
C)the supply of workers decreases.
D)unemployment increases.
E)the supply of workers increases.

Question 52

Use the table below to answer the following questions.
Table 6.2.2

Refer to Table 6.2.2.What is the level of unemployment in millions of hours if the minimum wage is set at $7 per hour?

A)40
B)30
C)20
D)10
E)zero

Question 53

Suppose the demand for gasoline is inelastic, but not perfectly inelastic, and the supply is elastic, but not perfectly elastic.A tax on gasoline is paid

A)mostly by buyers.
B)mostly by sellers.
C)equally by buyers and sellers.
D)totally by buyers.
E)totally by sellers.

Question 54

Use the figure below to answer the following questions.

Figure 6.3.1
Refer to Figure 6.3.1 showing the market for frisbees before and after a tax is imposed.On each frisbee, the sellers' share of the tax is

A)$0.40.
B)$0.60.
C)$1.00.
D)$5.60.
E)$6.60.

Question 55

Suppose the equilibrium wage is $10 an hour.A minimum wage is a price ________ that will change the quantity of employment if it is set at ________ an hour.

A)floor; $12
B)ceiling; $12
C)floor; $8
D)ceiling; $8
E)floor; $10

Question 56

Suppose the minimum wage is $4 per hour, and 1,100 units of labour are hired.Then the government raises the minimum wage to $6 per hour, and 900 units are now hired.Choose the correct statement.

A)Total wages paid to workers has increased.
B)The price elasticity of demand for labour is 0.5.
C)There is unemployment in this labour market.
D)The quantity of labour supplied is greater at the higher minimum wage.
E)The labour market is efficient.

Question 57

Use the figure below to answer the following questions.

Figure 6.3.1
Refer to Figure 6.3.1 showing the market for frisbees before and after a tax is imposed.Government revenue from the tax is

A)$4,000.
B)$5,000.
C)$22,400.
D)$26,400.
E)$30,000.

Question 58

Use the table below to answer the following questions.
Table 6.2.1

Table 6.2.1 gives the supply and demand schedules for teenage labour in Genoa City.There is a minimum wage set at $6 per hour.Suppose a new fast food restaurant opens and increases the quantity demanded of teenage labour by 400 hours per week at each wage rate.The result is

A)elimination of teenage unemployment and a wage rate of $7 per hour.
B)elimination of teenage unemployment, but the wage rate remains at $6 per hour.
C)some teenage unemployment with the wage rate remaining at $6 per hour.
D)no change in teenage unemployment because the wage rate rises to $7 per hour.
E)none of the above

Question 59

Use the table below to answer the following questions.
Table 6.2.2

Refer to Table 6.2.2.What is the equilibrium wage rate in an unregulated market?

A)$5.00 per hour
B)$5.50 per hour
C)$6.00 per hour
D)$6.50 per hour
E)$7.50 per hour

Question 60

Complete the following sentence.A price floor set below the equilibrium price results in

A)a surplus.
B)a shortage.
C)the equilibrium price.
D)an increase in supply.
E)a decrease in demand.

Question 61

The buyer pays most of a tax if supply is relatively elastic because

A)the buyer cannot easily substitute to other markets.
B)the seller can easily substitute to other markets.
C)the government forces the seller to bear the burden.
D)there is a black market for this good.
E)the seller cannot easily substitute to other goods.

Question 62

Use the figure below to answer the following questions.

Figure 6.3.2
Refer to Figure 6.3.2.The seller's share of the tax is

A)zero.
B)$0.50.
C)$1.00.
D)$1.50.
E)$2.00.

Question 63

The burden of the tax on buyers is greater the more (1) elastic is demand.
(2) inelastic is demand.
(3) elastic is supply.
(4) inelastic is supply.

A)(2)only
B)(1)and (3)
C)(1)and (4)
D)(2)and (3)
E)(2)and (4)

Question 64

Use the figure below to answer the following questions.

Figure 6.3.2
Refer to Figure 6.3.2.Government revenue from the tax is

A)zero.
B)$100.
C)$300.
D)$400.
E)$600.

Question 65

Use the figure below to answer the following questions.

Figure 6.3.2
Refer to Figure 6.3.2.The buyers' share of the tax is

A)zero.
B)$0.50.
C)$1.00.
D)$1.50.
E)$2.00.

Question 66

Use the figure below to answer the following questions.

Figure 6.3.2
Refer to Figure 6.3.2.The amount of the tax per unit is

A)zero.
B)$0.50.
C)$1.00.
D)$1.50.
E)$2.00.

Question 67

If the supply of a good is perfectly elastic, then a tax on the good will be paid

A)completely by the buyers.
B)completely by the sellers.
C)equally by the buyers and sellers.
D)mostly but not completely by the buyers.
E)mostly but not completely by the sellers.

Question 68

Use the figure below to answer the following questions.

Figure 6.3.3
Refer to Figure 6.3.3.Suppose a tax of $1 is imposed.In which market would tax revenue be the lowest?

A)(a)
B)(b)
C)(c)
D)(d)
E)all markets equally

Question 69

The buyer pays most of a tax if demand is relatively inelastic because

A)the buyer cannot easily substitute to other markets.
B)the buyer can easily substitute to other markets.
C)the government forces the seller to bear the burden of the tax.
D)there is a black market for this good.
E)the seller cannot easily substitute to other goods.

Question 70

Use the figure below to answer the following questions.

Figure 6.3.3
Refer to Figure 6.3.3.Suppose a tax of $1 is imposed.In which market would the seller pay the highest portion of the tax?

A)(a)
B)(b)
C)(c)
D)(d)
E)all markets equally

Question 71

The seller pays most of a tax if demand is relatively elastic because

A)the buyer can easily substitute to other markets.
B)the seller can easily substitute to other markets.
C)the government forces the seller to bear the burden of the tax.
D)there is a black market for this good.
E)the seller cannot easily substitute to other goods.

Question 72

Use the figure below to answer the following questions.

Figure 6.3.3
Refer to Figure 6.3.3.Suppose a tax of $1 is imposed.In which market would tax revenue be the highest?

A)(a)
B)(b)
C)(c)
D)(d)
E)all markets equally

Question 73

Governments tend to tax items with inelastic demand because

A)governments wish to avoid big rises in after-tax prices.
B)sellers pay most of the tax in these cases.
C)buyers pay most of the tax in these cases.
D)these goods yield the most tax revenues.
E)these goods are luxury goods.

Question 74

If a sales tax is imposed on food, who is likely to pay most of the tax?

A)mostly the buyer
B)mostly the seller
C)neither the seller nor the buyer
D)the buyer and the seller equally
E)The burden of the tax depends on the size of the tax.

Question 75

Use the figure below to answer the following questions.

Figure 6.3.2
Refer to Figure 6.3.2.The deadweight loss from the sales tax is

A)$50.
B)$100.
C)$200.
D)$1,000.
E)$150.

Question 76

If the price of a good is not affected by a tax, then

A)supply is perfectly elastic.
B)demand is perfectly elastic.
C)the elasticity of supply is greater than elasticity of demand.
D)demand is unit elastic.
E)supply is unit elastic.

Question 77

Use the figure below to answer the following questions.

Figure 6.3.3
Refer to Figure 6.3.3.Suppose a tax of $1 is imposed.In which market would the buyer pay the highest portion of the tax?

A)(a)
B)(b)
C)(c)
D)(d)
E)all markets equally

Question 78

Suppose your province raises the provincial sales tax by 1 percent.You predict that the prices of taxed goods (including the tax)will

A)rise by 1 percent.
B)rise by more than 1 percent.
C)rise by an amount between zero and 1 percent.
D)not change at all.
E)fall by an amount between zero and 1 percent.

Question 79

The burden of tax on sellers is greater the more (1) elastic is demand.
(2) inelastic is demand.
(3) elastic is supply.
(4) inelastic is supply.

A)(2)only
B)(1)and (3)
C)(1)and (4)
D)(2)and (3)
E)(2)and (4)

Question 80

Use the figure below to answer the following questions.

Figure 6.3.2
Refer to Figure 6.3.2.Between 200 and 300 units, demand is

A)inelastic.
B)unit elastic.
C)elastic.
D)perfectly inelastic.
E)perfectly elastic.