Deck 4: Prices: Free, controlled, and Relative

Question 1

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.
E) none of the above

Answer 1

At the price ceiling the shortage equals 400 units.

Question 2

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

Answer 2

a tie-in sale.

Question 3

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.

Answer 3

minimum price below which legal trades cannot be made.

Question 4

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 5

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.
E) b and d

Question 6

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 goods.
C) No change will occur in the market.
D) There may be buyers who are willing to pay quite high prices so they can consume more than what they are consuming now.
E) a,b,and d

Question 7

Exhibit 4-1
Refer to Exhibit 4-1.In a free market,________ 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 8

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.
E) both a and b

Question 9

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 10

Which of the following statements is true?

A) Price ceilings set below the equilibrium price cause shortages.
B) Surpluses cause price ceilings to be imposed.
C) Neither a price ceiling nor a shortage is the cause of the other.
D) Federal law states that price ceilings cannot be imposed for longer than a month.

Question 11

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 12

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

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

Question 13

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) all of the above
E) none of the above

Question 14

Exhibit 4-1
Refer to Exhibit 4-1.How many fewer units are exchanged because of the price ceiling than ultimately would be exchanged in a free market?

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

Question 15

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 16

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 17

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 18

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 sold.
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 sold.

Question 19

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 20

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
E) none of the above

Question 21

Refer to Situation 4-1.An economist would predict 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.
E) both a and d

Question 22

Exhibit 4-3
Refer to Exhibit 4-3.If P₁ is a price ceiling,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 23

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 24

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) both b and c
E) all of the above

Question 25

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) the price at which exchange takes place is P₂.
D) there is a shortage in the market for good X.
E) both a and c

Question 26

Exhibit 4-4
Refer to Exhibit 4-4.Which of the following 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 27

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 decrease 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.
E) a and b

Question 28

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 29

Exhibit 4-3
Refer to Exhibit 4-3.If P₁ is a price ceiling,the highest price for good Y,which is tied (a tie-in sale)to good X,is

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

Question 30

Refer to Situation 4-1.An economist would predict 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.
E) both c and d

Question 31

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.
E) all of the above

Question 32

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

A) If price P₁ is set as a price ceiling it will have an effect on the market for good X.
B) If price P₁ is set as a price floor it 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 33

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.
E) both a and b

Question 34

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 close to the ceiling price and probably below it.
B) The demand curve for gasoline in the 1970s was quite different from today's.
C) The supply curve for gasoline in the 1970s was quite different from today's.
D) The effects of price ceilings are dependent upon the benevolence of the government imposing them.

Question 35

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

A) Graph (1): There is a shortage when price is 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 36

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 37

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 38

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.
E) a and b

Question 39

If the price of good X is $50 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) 2.00
C) 0.75
D) 1.33
E) 0.50

Question 40

Refer to Situation 4-1.Because price controls were in effect at the time the embargo occurred,an economist would predict that

A) the number of dollars one would need to pay at the pump for a full tank of gasoline would increase sharply.
B) the number of dollars one would need to pay at the pump for a full tank of gasoline would decline sharply.
C) long waiting lines and black markets would appear.
D) a surplus of gasoline would result.

Question 41

Exhibit 4-7
Refer to Exhibit 4-7.How many unskilled workers are employed at the minimum wage?

A) N₂
B) N₁
C) N₃
D) N₁ + N₃

Question 42

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 employment for unskilled workers.
C) increase the number of firms in those industries where the law is effective.
D) reduce the hours worked for some unskilled workers.
E) all of the above

Question 43

If the absolute price of a new car is $40,000 and the relative price of a laptop computer in terms of cars is 1/20 of a car,it follows that the absolute price of a laptop is

A) $10,000.
B) $1,000.
C) $4,000.
D) $2,000.
E) There is not enough information to answer the question.

Question 44

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.
E) none of the above

Question 45

A shortage of kidneys (for transplants)results from

A) the legal price being set below equilibrium.
B) the legal price being set above equilibrium.
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 = $0,assuming the equilibrium price is greater than $0.
E) a and d

Question 46

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 effect on the unskilled labor market.
D) a prolonged surplus of unskilled labor.
E) none of the above

Question 47

Exhibit 4-5
Refer to Exhibit 4-5.Suppose the government imposes a price ceiling at P = $0.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 48

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
E) none of the above

Question 49

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
E) a and c

Question 50

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

A) the minimum wage change did not affect the labor market.
B) nothing,unless we know that the number of hours worked by each worker has not changed.
C) the minimum wage could be below the equilibrium value for unskilled labor.
D) either b or c
E) none of the above

Question 51

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 52

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 53

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) none of the above

Question 54

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 affect the unskilled labor market.
D) unskilled labor market will change,but we cannot be certain how.

Question 55

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 56

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.
E) none of the above

Question 57

If the absolute price of a computer is $1,500 and the relative price of a dining room table is 2 computers,it follows that the absolute price of a dining room table is

A) $10,000.
B) $750.
C) $3,000.
D) $30,000.
E) none of the above

Question 58

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) a and c
E) none of the above

Question 59

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 60

Which of the following statement is false?

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) Kidneys are currently being illegally bought and sold.
D) In the market for kidneys (for transplants)the legal price is the equilibrium price.

Question 61

In the market for a given product,when a price floor is set above the equilibrium price the result will be

A) more exchanges made in the market.
B) an increase in the supply of the product.
C) a decrease in the demand for the product.
D) a deadweight loss.

Question 62

Exhibit 4-8
Refer to Exhibit 4-8.Suppose that wheat producers lobby the government for a price floor and receive one.This price floor is set at P_F.What is the size of the producers' surplus at P_F?

A) area 2 + 3 + 4 + 5
B) area 2 + 3
C) area 4
D) area 6

Question 63

If goods are not rationed according to price,if follows that

A) they won't get rationed at all.
B) some mechanism will be used to ration the goods.
C) first-come-first-served will necessarily be the rationing device.
D) there will be surpluses in the market.
E) none of the above

Question 64

Exhibit 4-9

Refer to Exhibit 4-9.Suppose that the government imposes a price ceiling at a price of $10.The number of units that would be exchanged in this market would be

A) 150,since that is the equilibrium quantity and the price ceiling is below the equilibrium price.
B) 220,since that is the number of units demanded at the price ceiling (and the quantity demanded is greater than the quantity supplied).
C) 90,since that is the number of units supplied at the price ceiling (and the quantity supplied is less than the quantity demanded).
D) 155,since that is the average of the quantity demanded and the quantity supplied at the price ceiling.

Question 65

Suppose that the price of butter is $3 per pound and the price of margarine is $2 per pound.If the price of butter rises to $3.60 and the price of margarine rises to $3,then the absolute price of butter has _______________ and the relative price of butter has _______________.

A) risen;fallen
B) fallen;risen
C) risen;risen
D) fallen;fallen

Question 66

Exhibit 4-9

Refer to Exhibit 4-9.Suppose that the government imposes a price ceiling at a price of $10._________ units would be exchanged in a free market,and ____________ units would be exchanged with the price ceiling in effect.

A) 150;220
B) 150;70
C) 110;180
D) 150;90

Question 67

Exhibit 4-8
Refer to Exhibit 4-8.Suppose that wheat producers lobby the government for a price floor and receive one.This price floor is set at P_F.How many fewer units of wheat will be sold at the price floor than at the equilibrium price?

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

Question 68

Exhibit 4-8
Refer to Exhibit 4-8.Suppose that wheat producers lobby the government for a price floor and receive one.This price floor is set at P_F.What is the quantity of wheat purchased at P_F?

A) Q₁
B) Q₂
C) Q₃
D) Q₂ - Q₁

Question 69

Exhibit 4-8
Refer to Exhibit 4-8.If the wheat market is in competitive equilibrium,the consumers' surplus will equal

A) area 1 + 2 + 3
B) area 1 + 2 + 4
C) area 3 + 5
D) area 1 + 2 + 3 + 4 + 5
E) area 6

Question 70

Exhibit 4-8
Refer to Exhibit 4-8.Suppose that wheat producers lobby the government for a price floor and receive one.This price floor is set at P_F.What is the size of the consumers' surplus at P_F?

A) area 5
B) area 6
C) area 1 + 2 + 4
D) area 1

Question 71

Exhibit 4-9

Refer to Exhibit 4-9.Suppose that the government imposes a price ceiling at a price of $11.How many fewer units would be exchanged with the price ceiling than in a free market?

A) 50
B) 30
C) 40
D) 70

Question 72

Exhibit 4-8
Refer to Exhibit 4-8.Suppose that wheat producers lobby the government for a price floor and receive one.This price floor is set at P_F.What has happened to the consumers' surplus as a result of the imposition of the price floor?

A) consumers' surplus has gone down by (area 2 + 4)
B) consumers' surplus has risen by (area 2 + 4)
C) consumers' surplus has gone down by (area 3 - area 5)
D) consumers' surplus has risen by (area 2 + 3)

Question 73

The minimum wage is an example of a

A) price door.
B) price wall.
C) price floor.
D) price ceiling.

Question 74

Exhibit 4-8
Refer to Exhibit 4-8.Suppose that wheat producers lobby the government for a price floor and receive one.This price floor is set at P_F.What is the size of the total surplus at P_F?

A) area 1 + 2 + 3
B) area 1 + 2 + 3 + 4
C) area 1 + 2 + 3 + 4 + 5
D) area 1 + 2 + 3 + 4 + 5 + 6

Question 75

Exhibit 4-8
Refer to Exhibit 4-8.Suppose that wheat producers lobby the government for a price floor and receive one.This price floor is set at P_F.What is the change in the total surplus at the price floor,compared to at the equilibrium price?

A) There was a gain in total surplus equal to (area 1 + 2 + 3)
B) There was a gain in total surplus equal to (area 1 + 2 + 3 + 4 + 5)
C) There was a loss in total surplus equal to (area 4 + 5)
D) There was a loss in total surplus equal to (area 4 + 5 + 6 )

Question 76

Exhibit 4-8
Refer to Exhibit 4-8.Suppose that wheat producers lobby the government for a price floor and receive one.This price floor is set at P_F.What has happened to the producers' surplus as a result of the imposition of the price floor?

A) Producers' surplus has risen by (area 2 + 3)
B) Producers' surplus has fallen by (area 4 + 5)
C) Producers' surplus has changed by (area 3 - area 5)
D) Producers' surplus has changed by (area 2 - area 5)

Question 77

Exhibit 4-9

Refer to Exhibit 4-9.Suppose that the government imposes a price ceiling at a price of $15.The number of units that would be exchanged in this market would be

A) 150,since that is the equilibrium quantity and the price ceiling is above the equilibrium price.
B) 80,since that is the number of units demanded at the price ceiling.
C) 260,since that is the number of units supplied at the price ceiling.
D) 170,since that is the average of the quantity demanded and the quantity supplied at the price ceiling.

Question 78

Someone says,"Even though the equilibrium wage rate is $7 an hour in the unskilled labor market,if we impose a minimum wage of $8 an hour,no one currently working will lose his or her job." This person must believe that the

A) demand curve for unskilled labor is vertical.
B) demand curve for unskilled labor is downward-sloping.
C) firms that hire unskilled laborers are earning high profits.
D) firms that hire unskilled laborers have relatively low costs.
E) none of the above.

Question 79

Exhibit 4-8
Refer to Exhibit 4-8.If the wheat market is in competitive equilibrium the producers' surplus will equal

A) area 1 + 2 + 3
B) area 1 + 2 + 4
C) area 3 + 5
D) area 1 + 2 + 3 + 4 + 5
E) area 6

Question 80

Exhibit 4-8
Refer to Exhibit 4-8.If the wheat market is in competitive equilibrium the total surplus will equal

A) area 1 + 2 + 3 + 4 + 5
B) area 1 + 2 + 3
C) area 2 + 3 + 4 + 5
D) area 4 + 5