Deck 7: Government Actions in Markets

Question 1

In a market with a rent ceiling set below the equilibrium rent, the producer and consumer surplus

A) do not change.
B) both increase.
C) are both totally converted into deadweight loss.
D) are eliminated.
E) both decrease, but generally not to zero.

Answer 1

both decrease, but generally not to zero.

Question 2

A price ceiling

A) can create a black market for the good.
B) creates market efficiency by making a good cheaper.
C) benefits all people who want to buy the good.
D) reduces search activity.
E) helps all producers by increasing the price of the good.

Answer 2

can create a black market for the good.

Question 3

With a rent ceiling set below the equilibrium rent, i. all renters are able to rent flats at a lower rent.
Ii) there is a shortage of flats.
Iii) the quantity of flats supplied does not change because buildings cannot be moved.

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

Answer 3

ii only

Question 4

The deadweight loss in a housing market with a rent ceiling set below the equilibrium rent is the

A) loss to those who cannot find apartments and the gain to landlords who charge black market rents.
B) loss to tenants and the gain to landlords who have the incentive to offer more apartments for rent.
C) gain to landlords and to tenants because now a fairer rent is charged.
D) loss to landlords and the gain to tenants who pay a fairer rent.
E) loss to those who cannot find apartments and the loss to landlords who cannot offer housing at the lower rent ceiling.

Question 5

One of the consequences of a rent ceiling set below the equilibrium rent is

A) decreased search activity.
B) the establishment of landlord unions.
C) increased search activity.
D) surpluses of apartments.
E) the elimination of the deadweight loss that would otherwise exist in the housing market.

Question 6

In a housing market with a rent ceiling below the equilibrium rent, apartment seekers spend more time searching for an apartment than they would in a housing market without a rent ceiling. Why does this difference exist?

A) The premise of the question is incorrect because people spend less time searching with a rent ceiling since they no longer need to look for a low-priced apartment.
B) The premise of the question is incorrect because there is no difference in the search time between a market with a rent ceiling and one without a ceiling.
C) In the market with the rent ceiling, the quantity of housing demanded is greater than quantity supplied at the ceiling price.
D) In the market with the rent ceiling, there is a wide variety in the quality of apartments for rent.
E) In the market with the rent ceiling, renters are searching for the best buy in apartments.

Question 7

The deadweight loss from a rent ceiling below the equilibrium rent is smallest when the supply of housing is

A) unit elastic.
B) perfectly elastic.
C) elastic but not perfectly elastic.
D) perfectly inelastic.
E) inelastic but not perfectly inelastic.

Question 8

When a rent ceiling below the equilibrium rent is put in place, the outcome is

A) inefficient because marginal benefit equals marginal cost.
B) inefficient because marginal benefit is greater than marginal cost.
C) inefficient because marginal benefit is less than marginal cost.
D) efficient because marginal benefit is greater than marginal cost.
E) efficient because marginal benefit equals marginal cost.

Question 9

The demand and supply schedules for pizza are in the table above. If the government sets a maximum legal price of $2 per slice of pizza, then

A) there is a shortage of 20 slices of pizza.
B) this maximum price is an example of a price floor.
C) this maximum price is an example of a price ceiling.
D) Both answers A and C are correct.
E) Both answers B and C are correct.

Question 10

An illegal market in which the price exceeds a legally imposed price ceiling is called a

A) subsidised market.
B) surplus market.
C) fair market.
D) shortage market.
E) black market.

Question 11

A black market for housing exists because of a rent ceiling. The rent for housing in the black market is

A) not defined because the market is not legal.
B) lower than the ceiling rent.
C) somewhere between the ceiling rent and the maximum rent a tenant is willing to pay.
D) the same as the equilibrium rent.
E) somewhere between zero and the equilibrium rent.

Question 12

Suppose the equilibrium rent in Mildura is $1,500. A rent ceiling of $1,600 per month leads to

A) a surplus of flats in Mildura.
B) no change in the Mildura flat market.
C) a shortage of flats in Mildura.
D) compared to the situation at the equilibrium rent, a decrease in the quantity of flats demanded and an increase in the quantity of flats supplied.
E) fair prices in the Mildura flat market.

Question 13

The opportunity cost of an apartment in a rent-controlled market is equal to

A) the opportunity cost of searching for the apartment.
B) the rent charged for the apartment.
C) the rent charged for the apartment minus the opportunity cost of searching for the apartment.
D) the rent charged for the apartment plus the opportunity cost of searching for the apartment.
E) nothing, because of the surplus of apartments when there are rent controls.

Question 14

If a price ceiling is set above the equilibrium price, then

A) there will be neither a shortage nor a surplus of the good.
B) the price ceiling affects suppliers but not demanders.
C) the price ceiling will generate revenue for the government.
D) there will be a shortage of the good.
E) there will be a surplus of the good.

Question 15

The figure above illustrates the bagel market. Which of the following statements is correct?

A) With no government intervention, the equilibrium price of a bagel is $2.
B) With a price ceiling of $3.00 per bagel, the price of a bagel is $2.
C) With a price ceiling of $1.00 per bagel, the price of a bagel is $1.
D) Only answers A and B are correct.
E) Answers A, B and C are correct.

Question 16

The demand and supply schedules for pizza are in the table above. A price ceiling of $2 per slice results in

A) a shortage of 60 slices of pizza.
B) a surplus of 20 slices of pizza.
C) a shortage of 20 slices of pizza.
D) a shortage of 40 slices of pizza.
E) neither a shortage nor a surplus.

Question 17

A price ceiling

A) is the maximum price that can legally be charged.
B) is an illegal price.
C) is the price that exists in a black market.
D) Both answers A and B are correct.
E) Both answers B and C are correct.

Question 18

When a price ceiling below the equilibrium price is imposed on a good, production of the good

A) is frozen at the pre-ceiling level.
B) does not change.
C) increases.
D) decreases.
E) either increases or decreases depending on whether the supply of the good increases or decreases when the price ceiling is imposed.

Question 19

A rent ceiling set below the equilibrium rent

A) ensures the availability of enough low-rent housing in a city.
B) ensures that landlords earn a reasonable rate of profit on housing.
C) creates a situation in which the quantity demanded of housing is greater than quantity supplied.
D) eliminates discrimination by landlords.
E) results in all renters and potential renters being better off.

Question 20

A housing shortage results when

A) rents rise.
B) a tax is imposed on housing.
C) a rent floor below the equilibrium rent is imposed.
D) a rent ceiling above the equilibrium rent is imposed.
E) a rent ceiling below the equilibrium rent is imposed.

Question 21

A rent ceiling on housing creates a problem of allocating the available housing units because

A) it eliminates search, which is one of the major ways housing units are allocated.
B) the supply of housing increases and the supply curve shifts rightward.
C) a surplus of apartments occurs.
D) the demand for housing decreases and the demand curve shifts leftward.
E) a shortage of apartments occurs.

Question 22

The graph shows the market for ski chalets at Falls Creek. If a rent ceiling is set at $1,900 a week, then the maximum amount charged in the black market is ________ a week.

A) $150
B) $2,050
C) $1,900
D) $2,125
E) $225

Question 23

The above figure shows the market for 2-bedroom townhouses in Canberra. If a rent ceiling is set at $1,000 per month then there is a

A) surplus equal to 150,000 townhouses.
B) shortage equal to 150,000 townhouses.
C) shortage equal to 250,000 townhouses.
D) surplus equal to 100,000 townhouses.
E) shortage equal to 100,000 townhouses.

Question 24

Rent controls

A) create a deadweight loss.
B) increase maintenance by landlords.
C) benefit people who live in rent-controlled apartments.
D) Both answers A and C are correct.
E) Both answers B and C are correct.

Question 25

Which of the following is an example of a price floor?

A) A minimum wage law.
B) An equilibrium price.
C) A law setting the highest price that can legally be charged for a litre of petrol.
D) A law passed in a city to lower apartment rents by setting the maximum price that can be charged for rent.
E) None of the above answers gives an example of a price floor.

Question 26

The above figure shows the market for 2-bedroom townhouses in Canberra. If a rent ceiling is set at $1,000 per month, what is true?

A) The quantity demanded of townhouses is less than the quantity supplied.
B) The quantity of townhouses supplied increases to 250,000.
C) Black market rents might be as high as $1,300 per month.
D) More townhouses are rented after the rent ceiling than before.
E) The quantity of townhouses demanded decreases to 100,000.

Question 27

The above figure shows a housing market with a rent ceiling equal to $1,000. In this figure, what area is equal to the resources lost due to search?

A) Area A
B) Area B
C) Area C
D) Area D
E) Area E

Question 28

The above figure shows a housing market with a rent ceiling equal to $1,000. In this figure, what area is equal to the deadweight loss?

A) Area A
B) Area B
C) Area C
D) Area D
E) Area E

Question 29

The above figure shows a housing market with a rent ceiling equal to $1,000. In this figure, what area is equal to the producer surplus?

A) Area A
B) Area B
C) Area C
D) Area D
E) Area E

Question 30

A price floor is

A) a legal price of zero that can be charged for a good or service.
B) usually equal to the equilibrium price established before the government imposed the price floor.
C) the highest possible legal price that can be charged for a good or service.
D) almost always equal to the price ceiling.
E) the lowest legal price at which a good or service can be traded.

Question 31

The above figure shows the market for 2-bedroom townhouses in Canberra. If a rent ceiling is set at $1,000 per month, what is the maximum rent someone is willing to pay in the black market?

A) $1,000 per month
B) $1,100 per month
C) $900 per month
D) $1,300 per month
E) $1,400 per month

Question 32

If a rent ceiling is imposed that is less than the equilibrium rent, which of the following outcomes is most likely to occur?

A) A housing surplus
B) Reduced search activity
C) Black market activity
D) A building boom
E) None of the above answers is correct because, to have an impact, the rent ceiling must be above the equilibrium rent.

Question 33

The above figure shows the market for DVDs. The government decides that all citizens deserve to watch affordable DVDs so a price ceiling of $12 per DVD is placed on DVDs. After this price ceiling is in effect, producer surplus equals ________.

A) $900,000
B) $100,000
C) $400,000
D) $200,000
E) $1,800,000

Question 34

The above figure shows the market for DVDs. The government decides that all citizens deserve to watch affordable DVDs so a price ceiling of $12 per DVD is placed on DVDs. After this price ceiling is in effect, and taking account of the resources lost in search, consumer surplus equals ________.

A) $200,000
B) $400,000
C) $100,000
D) $900,000
E) $180,000

Question 35

The above figure shows the market for DVDs. The government decides that all citizens deserve to watch affordable DVDs so a price ceiling of $12 per DVD is placed on DVDs. After this price ceiling is in effect, deadweight loss equals ________.

A) $1,800,000
B) $400,000
C) $200,000
D) $1,600,000
E) $800,000

Question 36

The graph shows the market for ski chalets at Falls Creek. The Falls Creek Tourist Board asks the local government to impose a rent ceiling on ski chalets. If the rent ceiling is set at $1,900 a week, then there is

A) a shortage of 3,000 chalets a week.
B) a surplus of 3,000 chalets a week.
C) a shortage of 6,000 chalets a week.
D) a surplus of 6,000 chalets a week.
E) neither a shortage nor surplus of chalets.

Question 37

The above figure shows a housing market with a rent ceiling equal to $1,000. In this figure, after taking account of the resources lost in search, what area is equal to the consumer surplus?

A) Area A
B) Area B
C) Area C
D) Area D
E) Area E

Question 38

Rent ceilings

A) allocate resources efficiently.
B) benefit all landlords because the landlords know what rent to charge their renters.
C) benefit renters living in rent-controlled apartments.
D) eliminate the problem of scarcity.
E) ensure that housing goes to poorer people.

Question 39

Which of the following is an example of the unfairness of rent control?

A) Racial discrimination in renting is discouraged by rent control.
B) Rich people do not get apartments in these markets.
C) Newcomers have a more difficult time finding apartments.
D) Too many people rent apartments.
E) Voluntary exchange is encouraged by rent control.

Question 40

A rent ceiling creates a deadweight loss

A) if it is set below the equilibrium rent.
B) if it decreases the taxes the government collects in the housing market.
C) if it is set equal to the equilibrium rent.
D) if it set above the equilibrium rent.
E) never, because if it did create a deadweight loss, the government would not impose it.

Question 41

In the figure above, if the minimum wage is $8 per hour, then

A) resources used in job-search activity increase compared to the situation before the minimum wage.
B) the deadweight loss is minimised.
C) it is legal to hire workers for a wage below the minimum wage because otherwise unemployment would result.
D) Both answers A and B are correct.
E) Both answers B and C are correct.

Question 42

One result of the minimum wage is

A) an increase in employment among poor and unskilled workers.
B) a black market for labour that pays more than the minimum wage.
C) a black market for labour that pays less than the minimum wage.
D) a decrease in unemployment among poor and unskilled workers.
E) decreased job-search activity.

Question 43

Suppose the marginal benefit the owner of a cherry orchard derives from hiring Lauren to pick cherries is $8 per hour. If the wage rate that Lauren earns is $7 per hour, then the orchard owner's surplus from Lauren's labour is ________ per hour.

A) $15
B) $0
C) $1
D) $7
E) $8

Question 44

Suppose the current equilibrium wage rate for housekeepers is $8.60 per hour. An increase in the minimum wage to $7.50 per hour leads to

A) a shortage of housekeepers.
B) a surplus of housekeepers.
C) no change in the market for housekeepers.
D) an increase in the quantity of housekeepers supplied.
E) unemployment of housekeepers.

Question 45

A minimum wage that is above the equilibrium wage rate

A) increases efficiency within the labour market.
B) creates a deadweight loss.
C) increases the quantity of labour demanded.
D) has no effect on the labour market because it is set above the equilibrium wage rate.
E) None of the above answers is correct.

Question 46

The figure above shows the labour market in a region. For a minimum wage to change the wage rate and amount of employment, it must be

A) set at $12 per hour.
B) set above $6 an hour.
C) left to the forces of supply and demand.
D) set equal to $6 an hour.
E) set below $6 an hour.

Question 47

In a competitive labour market, a minimum wage law set above the equilibrium wage rate

A) creates a surplus of labour.
B) causes equality between the quantity of labour supplied and the quantity demanded.
C) creates a shortage of labour.
D) lowers the wage rate paid to workers.
E) has no impact.

Question 48

If the minimum wage is set above the equilibrium wage, after taking into account the resources lost in job search, the firms' surplus ________ and the workers' surplus ________.

A) decreases; decreases
B) increases; decreases.
C) increases; increases
D) does not change; decreases
E) decreases; increases

Question 49

Suppose the current equilibrium wage rate for landscapers is $6.65 in Little Rock; $7.50 in St. Louis and $9.05 in Raleigh. An increase in the minimum wage to $7.50 per hour results in unemployment of landscapers in

A) Little Rock and St. Louis.
B) St. Louis and Raleigh.
C) only Little Rock.
D) only Raleigh.
E) Little Rock, St. Louis and Raleigh.

Question 50

The figure above shows the labour market in a region. If a minimum wage of $8 an hour is imposed, then there are ________ unemployed workers.

A) 20,000
B) 80,000
C) zero
D) 40,000
E) 60,000

Question 51

In the figure above, if the minimum wage rate is $8 per hour, then, after taking account of resources lost in job search, the workers' surplus is the area ________ and the firms' surplus is the area ________.

A) e; c
B) a; f
C) f; a
D) d; b
E) a + b + c + d + e; f

Question 52

In the labour market, as wages rise, households

A) increase the quantity of labour demanded.
B) decrease the quantity of labour supplied.
C) decrease the quantity of labour demanded.
D) increase the quantity of labour supplied.
E) increase the supply of labour.

Question 53

Why do some workers lose their jobs when the minimum wage is increased?

A) The supply of labour decreases.
B) The demand for labour is perfectly elastic.
C) The increase in labour costs decreases the supply of the product, thereby raising the price of the good so that the equilibrium quantity decreases to zero.
D) The demand for labour is perfectly inelastic.
E) The increase in the minimum wage decreases the quantity of labour demanded.

Question 54

Who loses and who gains from the minimum wage?

A) Losers are all workers and gainers are all firms.
B) Losers are all firms and gainers are all workers.
C) Gainers are some firms and all workers, while losers are some firms.
D) Gainers are some firms and some workers, while losers are other firms and other workers.
E) Losers are all firms and some workers, while gainers are other workers.

Question 55

A price floor set above the equilibrium price

A) balances supply and demand.
B) creates a surplus.
C) creates a shortage.
D) has no effect.
E) creates excess demand.

Question 56

Suppose the equilibrium price of a litre of milk is $4. If the government imposes a price floor of $5 per litre of milk, the

A) quantity supplied of milk exceeds the quantity demanded.
B) price of milk remains $4 per litre.
C) supply increases.
D) demand decreases.
E) quantity supplied of milk falls short of the quantity demanded.

Question 57

The people who immediately benefit from a minimum wage are

A) the workers who retain their jobs after enactment of the minimum wage.
B) everyone, both demanders and suppliers, because the minimum wage benefits everyone.
C) all workers.
D) employers who now pay the minimum wage.
E) those people who enter the labour force to search for minimum wage jobs.

Question 58

The labour demand and labour supply schedules are given in the table above. If a minimum wage of $9 per hour is imposed,

A) there is no surplus or shortage of workers.
B) there is unemployment of 700 workers.
C) the quantity demanded is 1,000 workers.
D) a shortage of 300 workers occurs.
E) a surplus of 300 workers occurs.

Question 59

The labour demand and labour supply schedules are given in the table above. If a minimum wage of $11 per hour is imposed,

A) a surplus of 300 workers occurs.
B) 900 workers are employed.
C) there is no shortage or surplus of workers.
D) Both answers B and C are correct.
E) Both answers A and C are correct.

Question 60

An increase in the minimum wage to $15 per hour would lead to

A) a decrease in search activity for many workers.
B) no change in unemployment.
C) no change in employment.
D) a decrease in unemployment.
E) an increase in search activity for many workers.

Question 61

A minimum wage set above the equilibrium wage rate creates

A) inefficiency because it creates excessive employment.
B) efficiency because few workers lose their jobs.
C) efficiency because workers can earn a living wage.
D) inefficiency and a deadweight loss.
E) efficiency because it increases most workers' wages.

Question 62

The graph above shows the labour market for fast-food workers in Canberra. If the government sets a minimum wage of $7 an hour, then the labour market is ________, and marginal benefit ________ marginal cost.

A) efficient; equals
B) inefficient; is greater than
C) inefficient; cannot be compared to
D) inefficient; is less than
E) inefficient; equals

Question 63

The above figure shows a labour market with a minimum wage of $8 an hour. The deadweight loss equals the

A) distance ab.
B) area abc.
C) distance ad.
D) area acd.
E) area bad.

Question 64

The methods that governments use to support farmers vary, but they almost always involve some or all the following methods EXCEPT

A) introducing a price floor.
B) taxing farmers.
C) isolating the domestic market from global competition.
D) using price supports.
E) paying the farmer a subsidy.

Question 65

A price floor is a price

A) below which a seller cannot legally sell.
B) that creates a shortage of the good if it is set above the equilibrium price.
C) above which a seller cannot legally sell.
D) Both answers A and C are correct.
E) Both answers B and C are correct.

Question 66

The above figure shows a labour market with a minimum wage equal to $16. In this figure, what area equals the resources lost because of job search?

A) Area A
B) Area B
C) Area C
D) Area D
E) Area E

Question 67

A price floor is considered

A) 'fair' based only on the fair results view.
B) 'unfair' based only on the fair results view.
C) 'unfair' based on both the fair results and fair rules views.
D) 'fair' based only on the fair rules view.
E) 'fair' based on the fair results view and on the fair rules view.

Question 68

The above figure shows a labour market with a minimum wage of $8 an hour. How many people are employed when the minimum wage is in place?

A) 40,000
B) 80,000
C) 60,000
D) Fewer than 40,000
E) More than 80,000

Question 69

The above figure shows a labour market with a minimum wage equal to $16. In this figure, after taking account of search costs, what area equals the workers' surplus?

A) Area A
B) Area B
C) Area C
D) Area D
E) Area E

Question 70

The 'fair results' view of fairness says that a minimum wage law set above the equilibrium wage rate is unfair because the minimum wage

A) does not apply to all workers.
B) boosts the income of highly skilled workers.
C) benefits nobody.
D) benefits only those workers who are able to find and keep a job.
E) cannot be enforced.

Question 71

The above figure shows the market for carpenters in Geelong. If there is a minimum wage set at $18, which of the following statements is true?

A) Workers who retain their jobs have their wages rise.
B) Firms' surplus increases with the minimum wage.
C) The quantity supplied of workers is less that quantity demanded.
D) The market is efficient.
E) Unemployment decreases because firms employ their workers more carefully.

Question 72

The above figure shows the market for carpenters in Geelong. There is a minimum wage set at $18. Compared to the initial equilibrium without the minimum wage, once the minimum wage is in place, and after taking account of job search, the total workers' surplus ________ and the total firms' surplus ________.

A) increases; increases
B) decreases; increases
C) decreases; decreases
D) does not change; increases
E) increases; decreases

Question 73

The above figure shows a labour market with a minimum wage equal to $16. In this figure, what area equals the deadweight loss?

A) Area A
B) Area B
C) Area C
D) Area D
E) Area E

Question 74

The above figure shows a labour market with a minimum wage equal to $16. In this figure, what area equals the firms' surplus?

A) Area A
B) Area B
C) Area C
D) Area D
E) Area E

Question 75

Labour unions support the minimum wage because

A) it puts upward pressure on all wages.
B) labour unions prefer to operate in black markets.
C) the increased unemployment is good for labour.
D) union members are usually paid the minimum wage.
E) the value associated with the deadweight loss goes to labour unions.

Question 76

To be effective in raising people's wages, a minimum wage must be set

A) equal to the equilibrium wage rate.
B) below the equilibrium wage rate.
C) below $7.
D) above the equilibrium wage rate.
E) either above or below the equilibrium wage depending on whether the supply curve of labour shifts rightward or leftward in response to the minimum wage.

Question 77

The graph shows the labour market for apple pickers in Tasmania. If the government sets a minimum wage of $5 an hour, ________ apple pickers are unemployed.

A) 8,000
B) 14,000
C) 6,000
D) 10,000
E) more than 14,000

Question 78

If a minimum wage is introduced that is above the equilibrium wage rate,

A) the supply of labour increases and the supply of labour curve shifts rightward.
B) job-search activity increases.
C) unemployment decreases because more workers accept jobs at the higher minimum wage rate.
D) the quantity of labour demanded increases.
E) the quantity of labour supplied decreases because of the increase in unemployment.

Question 79

The graph shows the labour market for teenagers in Brisbane. If the government sets a minimum wage of $6 an hour, the number of teenagers employed is

A) 3,000.
B) 5,000.
C) 7,000.
D) less than 3,000.
E) 4,000.

Question 80

Suppose the current equilibrium wage rate for lifeguards in Sydney is $7.85 an hour. A minimum wage law that creates a price floor of $8.50 an hour leads to

A) no changes in the lifeguard market.
B) a shortage of lifeguards in Sydney.
C) an increase in the number of lifeguards employed.
D) a change in the quantity of lifeguards supplied but no change in the quantity of lifeguards demanded.
E) a surplus of lifeguards in Sydney.