Deck 6: Supply, Demand and Government Policies

Question 1

Price controls often help those in need.

Answer 1

False

Question 2

Economists suggest that price controls should not be enacted because they believe that the market price of a good or service is efficient.

Answer 2

True

Question 3

If a price ceiling is non-binding, it will have no effect on the market.

Answer 3

True

Question 4

A binding minimum wage in a competitive labour market creates unemployment.

Question 5

Suppose the price floor is set below the equilibrium price. This will lead to the quantity supplied exceeding the quantity demanded.

Question 6

A binding price floor causes a surplus.

Question 7

A binding price ceiling allows consumers to buy all the goods they demand at a lower price.

Question 8

If the government sets the minimum price a good can be traded at, this is defined as a price floor.

Question 9

A price floor is a legal minimum on the price of a good or service.

Question 10

Suppose that the equilibrium wage rate in an industry is $10 per hour. The government then sets a minimum wage of $12 per hour. The result will be a surplus of labour supply.

Question 11

Opponents of the minimum wage note that a high minimum wage creates unemployment, causes teenagers to drop out of school and prevents some unskilled workers from getting the on-the-job training that they need.

Question 12

A binding price floor in a competitive market will result in persistent shortages of a product.

Question 13

Price controls are an effective way of allocating resources in an economy. For this reason there is widespread support for price controls among economists.

Question 14

The consequences of economic policies are often predicted or intended by their advocates.

Question 15

Taxes are employed by policy makers for two reasons. The first is to raise revenue. The second is to adjust market outcomes.

Question 16

Suppose a price ceiling is imposed on rice but this is above the equilibrium price. This will result in the quantity supplied of rice exceeding the quantity demanded.

Question 17

Suppose a price ceiling is placed on rice. The price ceiling is set above the equilibrium price. This will result in the quantity demanded of rice exceeding the quantity supplied.

Question 18

Long gas lines after OPEC raised the price of crude oil in world markets were caused by the higher prices of oil and gas.

Question 19

Common rationing mechanisms under price ceilings include waiting in long lines and biases of the sellers.

Question 20

The minimum wage creates the most benefits for teenage workers as their wages are typically much lower than adult workers.

Question 21

Lawmakers can decide whether the buyer or the seller must send a tax to the government but they cannot legislate the true burden of a tax.

Question 22

If a tax is imposed on the buyer of a product, the tax incidence will fall entirely on the buyer.

Question 23

The effect of a tax on a product is always to reduce the total size of its market.

Question 24

The incidence of a tax is determined by whether the tax is imposed on the seller or the buyer.

Question 25

A tax on sellers shifts the supply curve upward by exactly the size of the tax.

Question 26

If buyers of a product are required to pay a tax, the demand curve for the product will shift downward by exactly the size of the tax.

Question 27

Rich consumers always end up paying most of the tax on luxury goods.

Question 28

The tax burden generally falls on to the side of the market that is relatively more elastic.

Question 29

Tax incidence ultimately depends on the legislated burden.

Question 30

When analysing government policies, supply and demand are not very useful tools.

Question 31

If a tax is imposed on a market, buyers will pay more for their purchases and sellers will receive less for their sales.

Question 32

A tax on sellers will cause the equilibrium market price to rise but the equilibrium quality sold will fall.

Question 33

If a tax is imposed on a market with inelastic demand and elastic supply, sellers will bear most of the burden of the tax.

Question 34

Who pays the majority of a tax levied on a product depends on whether the tax is placed on the buyer or the seller.

Question 35

If a tax is imposed on a market with elastic demand and inelastic supply, buyers will bear most of the burden of the tax.

Question 36

When sellers are legally required to pay a tax, the burden of the tax falls solely on the sellers.

Question 37

A tax on golf clubs will cause the equilibrium market price of golf clubs to increase and the equilibrium quantity sold to decrease.

Question 38

Economists use the term tax incidence to refer to the proportion of tax paid by sellers relative to buyers.

Question 39

Most of the burden of a luxury tax falls on the middle-class workers who supply luxury goods, rather than on the rich who buy them.

Question 40

Rent subsidies and wage subsidies are better than price controls at helping the poor because they have no costs associated with them.

Question 41

If a price ceiling is binding:

A) the equilibrium price is above the ceiling and there will be a shortage
B) the equilibrium price is above the ceiling and there will be a surplus
C) the equilibrium price is below the ceiling and there will be a shortage
D) the equilibrium price is below the ceiling and there will be a surplus

Question 42

Price controls:

A) always produce the outcomes their architects anticipated or intended
B) are imposed because policy makers believe market prices are unfair
C) are imposed because policy makers believe market prices are inefficient
D) are used to create revenue for public purposes

Question 43

If a price ceiling is a not a binding constraint, then the:

A) actual price will be below the price ceiling
B) actual price will be above the price ceiling
C) equilibrium price will equal the price ceiling
D) actual price will equal the price ceiling

Question 44

Some developing countries have used price ceilings to keep rice cheap to assist the poor. At the ceiling price:

A) the quantity demanded will be greater than the quantity supplied and a shortage will result
B) the quantity demanded will be greater than the quantity supplied and a surplus will result
C) the quantity demanded will be less than the quantity supplied and a shortage will result
D) the quantity demanded will be less than the quantity supplied and a surplus will result

Question 45

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

A) floor
B) stabilisation
C) ceiling
D) cut

Question 46

If a price ceiling price is set above the equilibrium price:

A) a shortage of the product will occur
B) a surplus of the product will occur
C) buyers may have to queue in long lines for the product
D) neither the equilibrium price nor the equilibrium quantity will be affected

Question 47

If a price ceiling results in a shortage of the good, which of the following will NOT ration the demand:

A) queuing mechanisms that get people to wait in long lines
B) discrimination by the seller
C) an increase in the price of the good
D) none of the above

Question 48

Domestic producers of natural gas would welcome being a signatory to the world price regime if it is set above the equilibrium, as they can export the surplus.

Question 49

A price ceiling that is not binding:

A) is a detriment to society
B) will cause a shortage
C) will cause a surplus
D) has no effect

Question 50

A binding price ceiling in the computer market will cause:

A) a surplus of computers
B) a shortage of computers
C) quantity demanded of computers to be equal to quantity supplied
D) an increase in the demand for computers

Question 51

A binding price floor on wheat will:

A) force otherwise profitable farmers out of business
B) result in a shortage of wheat
C) result in a surplus of wheat
D) act as an efficient and impersonal rationing mechanism

Question 52

Graph 6-2

According to Graph 6-2, if the government imposes a binding price ceiling in this market at a price of $5.00, the result will be a:

A) shortage of 20 units
B) shortage of 30 units
C) surplus of 20 units
D) surplus of 40 units

Question 53

Graph 6-1

In which panel(s) in Graph 6-1 would there be a shortage for a good at the market price?

A) panel a
B) panel b
C) panel a and panel b
D) neither panel a nor panel b

Question 54

Graph 6-1

In Graph 6-1, a price ceiling that is not binding is shown in:

A) panel a
B) panel b
C) both panel a and panel b
D) neither panel a nor panel b

Question 55

Which of the following is an example of a price-ceiling?

A) a minimum wage
B) a sales tax
C) none of the above
D) a rent control

Question 56

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

A) floor
B) stabilisation
C) support
D) ceiling

Question 57

Price controls are:

A) usually enacted when policymakers believe that the market price of a good or service is unfair to buyers or sellers
B) used to make markets more efficient
C) nearly always effective in eliminating inequities
D) established by firms with monopoly power

Question 58

Graph 6-2

According to Graph 6-2, a binding price ceiling would exist at a price of:

A) $8.00
B) $6.00
C) $5.00
D) none of the above

Question 59

The world price for fuel is a price ceiling mechanism.

Question 60

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

A) the equilibrium price must be below the price ceiling
B) the equilibrium price must be above the price ceiling
C) the forces of supply and demand must be in equilibrium
D) it will have no effect on supply or demand

Question 61

Graph 6-4

According to Graph 6-4, when 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 62

Graph 6-3

According to Graph 6-3, which panel(s) best represent(s) a binding rent control in the short run?

A) panel a
B) panel b
C) neither panel
D) both panels

Question 63

If the minimum wage is below the equilibrium wage:

A)the quantity demanded of labour will be greater than the quantity supplied
B)the quantity demanded of labour will equal the quantity supplied
C)the quantity demanded of labour will be less than the quantity supplied
D)anyone who wants a job at the minimum wage can find one

Question 64

The minimum wage is an example of:

A) a price ceiling
B) a free-market process
C) a price floor
D) an efficient labour allocation mechanism

Question 65

Graph 6-5

According to Graph 6-5, if the government imposes a binding price floor of $6.00 in this market, the result will be a:

A) surplus of 15
B) surplus of 35
C) shortage of 30
D) shortage of 50

Question 66

The justification for the minimum wage is to:

A) increase the jobs available for workers
B) reduce the jobs available for unskilled workers
C) ensure all workers get an adequate standard of living
D) provide benefits to middle-class part-time workers

Question 67

When OPEC raised the price of crude oil in the 1970s, this 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 68

The minimum wage has its greatest adverse impact on the market for:

A) the most experienced workers
B) the most skilled workers
C) engineers
D) teenage labour

Question 69

Graph 6-5

According to Graph 6-5, a binding price floor would exist at a price of:

A) $6.00
B) $5.00
C) $2.00
D) none of the above

Question 70

Workers with high levels of skill and experience are not affected by the minimum wage because:

A) they belong to unions
B) they are not legally guaranteed the minimum wage
C) they generally earn wages less than the minimum wage
D) their equilibrium wages are well above the minimum wage

Question 71

Graph 6-6

According to Graph 6-6, in panel a, at the actual price 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 72

Graph 6-3

According to Graph 6-3, which panel(s) best represent(s) a binding rent control in the long run?

A) panel a
B) panel b
C) neither panel
D) both panels

Question 73

Rent controls lead to:

A) a shortage of housing in the short run and a surplus of housing in the long run
B) a surplus of housing in the short run and a surplus of housing in the long run
C) a small shortage of housing in the short run and a large shortage of housing in the long run
D) a large shortage of housing in the short run and a small shortage of housing in the long run

Question 74

A price floor is not binding if:

A) the price floor is higher than the equilibrium market price
B) the price floor is lower than the equilibrium market price
C) people are willing to buy as much when the price floor is imposed as they did before
D) the government sets it

Question 75

A binding price floor causes:

A) excess demand
B) a shortage
C) a surplus
D) equilibrium price to fall

Question 76

Which of the following is a correct statement about the labour market?

A) workers determine the supply of labour and firms determine the demand for labour
B) workers determine the demand for labour and firms determine the supply of labour
C) workers determine the supply of labour and government determines the demand for labour
D) government determines the supply of labour and firms determine the supply of labour

Question 77

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

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

Question 78

Graph 6-6

According to Graph 6-6, in panel b, at the actual price there will be:

A) cheaper wheat for consumers
B) equilibrium in the market
C) a surplus of wheat
D) rationing of demand with long waiting lines

Question 79

Water shortages caused by droughts can be lessened by:

A) allowing price to equate the demand for water with the supply of water
B) restricting water usage of consumers
C) arresting anyone who wastes water
D) imposing tight price controls on water

Question 80

Minimum wage laws dictate the:

A) average price employers must pay for labour
B) highest price employers may pay for labour
C) lowest price employers may pay for labour
D) quality of labour which must be supplied