Deck 4: Price Controls and Quotas: Meddling With Markets

Question 1

Use the following to answer questions:
(Figure: Rent Controls) Use Figure: Rent Controls. If rent controls are set at Rent₁:

A) rental apartments may be of inefficiently low quality.
B) there will be an efficient allocation of rentals.
C) some landlords may break the law by renting below the mandated price.
D) new apartments will be constructed.

Answer 1

rental apartments may be of inefficiently low quality.

Question 2

The government imposes a price ceiling below the equilibrium price. The price ceiling will cause:

A) demand to decrease.
B) supply to increase.
C) a shortage of the good.
D) an increase in the quality of the good.

Answer 2

a shortage of the good.

Question 3

Use the following to answer questions:
(Table: The Market for Soda) Use Table: The Market for Soda. If the government does NOT impose a price control, the price of a can of soda will equal:

A) $0.50.
B) $0.75.
C) $1.00.
D) $1.25.

Answer 3

$0.75.

Question 4

Use the following to answer questions:
(Figure: Rent Controls) Use Figure: Rent Controls. If rent controls are set at Rent₁:

A) the shortage of rental units is the distance Q₃ - Q₁.
B) some renters will be willing to pay a price as high as Rent₄ for Q₁ units.
C) no one will have to pay a higher actual price than Rent₀, nor will anyone be willing to do so.
D) there will be a surplus of rental units, but it is impossible to tell how large the surplus is based on the information provided.

Question 5

Use the following to answer questions:
(Figure: Rent Controls) Use Figure: Rent Controls. If rent controls are set at Rent₃:

A) the shortage of rental units is the distance Q₃ - Q₁.
B) some renters will be willing to pay a price as high as Rent₄ for Q₃ units.
C) no one will have to pay a higher actual price than Rent₀, nor will anyone be willing to do so.
D) rent will remain at Rent₂.

Question 6

Suppose the NFL wants to give the "common fan" the opportunity to attend the Super Bowl, so it sets Super Bowl prices "low"-let's say they set ticket prices for a regular seat at Super Bowl LI to cost just $400. People who have tickets, however, can turn around and sell them online for $1,500 or more. If there are no transaction costs for fans with tickets to sell them, the true cost to a fan of attending Super Bowl LI is:

A) at most $400.
B) at least $1,500.
C) the monetary price paid to obtain the ticket.
D) $1,100 less than the opportunity cost of a ticket.

Question 7

Use the following to answer questions:
(Figure: Rent Controls) Use Figure: Rent Controls. If rent controls are imposed and the government wants them to be immediately effective, they will most likely be set at either _____ or _____.

A) Rent₀; Rent₁
B) Rent₁; Rent₃
C) Rent₃; Rent₄
D) Rent₂; Rent₄

Question 8

A binding price ceiling is usually designed to:

A) keep prices below the equilibrium level.
B) increase the quality of the good.
C) prevent shortages.
D) increase efficiency.

Question 9

Use the following to answer questions:
(Figure: Rent Controls) Use Figure: Rent Controls. Without rent controls, the equilibrium rent is:

A) Rent₄.
B) Rent₁.
C) Rent₂.
D) Rent₃.

Question 10

Rent controls set a price ceiling below the equilibrium price, and therefore:

A) quantity supplied exceeds the quantity demanded.
B) quantity demanded exceeds the quantity supplied.
C) a surplus of rental units will result.
D) all poor people will be helped.

Question 11

The government decides to impose a price ceiling on a good because it thinks the market-determined price is too high. If the government imposes the price ceiling below the equilibrium price:

A) consumers will respond to the lower price and wish to purchase more of the good than at the equilibrium price.
B) producers will respond to the lower price and offer more units for sale.
C) consumers will be able to purchase more of the good after the price ceiling is imposed.
D) it will not be binding.

Question 12

Use the following to answer questions:
(Figure: Rent Controls) Use Figure: Rent Controls. If rent controls are set at Rent₀:

A) the shortage of rental units is the distance Q₁ - Q₃.
B) some renters will be willing to pay a price as high as Rent₄ for Q₀ units.
C) no one will have to pay a higher actual price than Rent₀, nor will anyone be willing to do so.
D) there will be a surplus of rental units.

Question 13

A price ceiling will have NO immediate effect if:

A) it is set above the equilibrium price.
B) the equilibrium price is above the price ceiling.
C) it is set below the equilibrium price.
D) it creates a shortage.

Question 14

Rapidly increasing health costs have been a major political concern since at least 1992. Suppose the government sets the maximum price for a normal doctor visit at $20 to control rising health costs but the current market price is $40. What is MOST likely to happen?

A) More people will try to visit the doctor, but there will be fewer doctors willing to see patients at that price.
B) The same number of people will try to visit the doctor, and the same number of doctors are willing to see patients at that price.
C) More people will be able to see the doctor, since the price is lower.
D) Fewer people will try to see the doctor, and fewer doctors are willing to see patients at that price.

Question 15

Use the following to answer questions:
(Figure: Rent Controls) Use Figure: Rent Controls. Suppose that rent controls are imposed. If the government wanted a rent control ceiling to be effective immediately, what is one possible price to set?

A) Rent₃
B) Rent₄
C) Rent₁
D) Rent₂

Question 16

A price control is:

A) control of the price of a good by the firm that produces it.
B) a legal restriction on how high or low a price in a market may go.
C) an upper limit on the quantity of some good that can be bought or sold.
D) a tax on the sale of a good that controls the market price.

Question 17

Use the following to answer questions:
(Table: The Market for Soda) Use Table: The Market for Soda. If the government imposes a price ceiling of $0.50 per can of soda, the quantity of soda demanded will be _____ cans.

A) 10
B) 8
C) 6
D) 4

Question 18

Use the following to answer questions:
(Figure: Rent Controls) Use Figure: Rent Controls. Without rent controls, the equilibrium quantity is:

A) Q₄.
B) Q₁.
C) Q₂.
D) Q₃.

Question 19

Use the following to answer questions:
(Figure: Rent Controls) Use Figure: Rent Controls. If rent controls are set at Rent₀, renters would be willing to pay a price at least as high as:

A) Rent₄ for Q₀ units.
B) Rent₄ for Q₁ units.
C) Rent₃ for Q₁ units.
D) No one would be willing to pay a higher actual price than Rent₀.

Question 20

The market for apples is in equilibrium at a price of $0.50 per pound. If the government imposes a price floor in the market at a price of $0.40 per pound:

A) quantity demanded will decrease.
B) quantity supplied will increase.
C) there will be a shortage of apples.
D) the price floor will not affect the market price or output.

Question 21

Suppose the Jamaican government sets coffee prices at $1 per pound when the market price is $10 per pound. The government's actions will:

A) improve efficiency since the low prices will force producers to find cheaper production methods.
B) result in coffee surpluses, even in a coffee-rich country.
C) cause coffee shortages, even in a coffee-rich country.
D) improve equality between rich and poor since the poor can now afford coffee.

Question 22

The most likely reason that the government implements a price _____ is because it feels the price is too high for _____.

A) ceiling; consumers
B) floor; consumers
C) ceiling; producers
D) floor; producers

Question 23

Use the following to answer questions:
(Table: Market for Apartments) Use Table: Market for Apartments. If a price ceiling of $700 is imposed on this market, the result will be an inefficiency in the form of a _____ million apartments.

A) surplus of 0.6
B) shortage of 0.6
C) surplus of 0.2
D) shortage of 0.2

Question 24

The dictator of a small country restricts the price of cars to an amount less than or equal to $1,200 (a price below the equilibrium price for cars). Such a policy would set a:

A) price floor.
B) price ceiling.
C) quota.
D) tariff.

Question 25

Hugo Chávez was the president of Venezuela. Venezuela is a major producer of oil products, which remain a critical component of Venezuela's economy. Suppose President Chávez wanted to increase his popularity with the citizens of Venezuela and enacted a government policy to reduce the price of gasoline sold at state-owned gas stations to 50% of the previous price. This policy is called a:

A) laissez faire policy.
B) price floor.
C) price ceiling.
D) quota.

Question 26

Hugo Chávez was the president of Venezuela. Venezuela is a major producer of oil products, which remain a critical component of Venezuela's economy. Suppose President Chávez wanted to increase his popularity with the citizens of Venezuela and enacted a government policy to reduce the price of gasoline sold at state-owned gas stations to 50% of the previous price. Assuming a downward-sloping demand curve for gasoline, in theory, this policy would result in a quantity of gasoline demanded that is _____ the quantity of gasoline supplied.

A) equal to
B) greater than
C) less than
D) greater than or equal to

Question 27

A student organization forms on your college campus to protest the high rent for apartments near campus. This organization is planning a meeting with the dean and the president of the college. Which choice BEST describes one policy the student organization might fight for?

A) a laissez faire policy
B) a price floor
C) a price ceiling
D) a quantity control

Question 28

The market for apples is in equilibrium at a price of $0.50 per pound. If the government imposes a price ceiling in the market at $0.40 per pound:

A) quantity demanded will decrease.
B) quantity supplied will increase.
C) there will be a shortage of the good.
D) the price ceiling will not affect the market price or output.

Question 29

A maximum price set below the equilibrium price is a:

A) demand price.
B) supply price.
C) price floor.
D) price ceiling.

Question 30

To be binding, a price ceiling must be set at a price _____ the equilibrium price.

A) lower than
B) higher than
C) the same as
D) Any price ceiling is binding.

Question 31

A price ceiling is:

A) a maximum price sellers are allowed to charge for a good or service.
B) the difference between the quantity supplied and quantity demanded.
C) a minimum price buyers are required to pay for a good or service.
D) the deadweight loss caused by an inefficiently low quantity.

Question 32

Use the following to answer questions:
(Table: The Market for Soda) Use Table: The Market for Soda. If the government imposes a price ceiling of $1 per can of soda, the quantity of soda demanded will be _____ cans.

A) 10
B) 8
C) 6
D) 4

Question 33

(Figure: Price Control) Use Figure: Price Control. One effective price ceiling would be the price indicated at point _____, and there would be a _____ equal to the difference between points _____.

A) b; surplus; f and e
B) b; shortage; f and e
C) d; shortage; i and h
D) d; surplus; e and h

Question 34

Use the following to answer questions:
(Table: The Market for Soda) Use Table: The Market for Soda. If the government imposes a price ceiling of $0.50 per can of soda, there will be:

A) a shortage of 2 cans.
B) a shortage of 3 cans.
C) a surplus of 3 cans.
D) equilibrium in the market for soda.

Question 35

Use the following to answer questions:
(Table: Market for Apartments) Use Table: Market for Apartments. If a price ceiling of $900 is imposed on this market, the result will be an inefficiency in the form of a _____ million apartments.

A) surplus of 0.6
B) shortage of 0.6
C) surplus of 0.2
D) shortage of 0.2

Question 36

Use the following to answer questions:
(Table: Market for Apartments) Use Table: Market for Apartments. If a government price ceiling of $600 is imposed on this market, the result will be an inefficiency in the form of a _____ million apartments.

A) surplus of 0.6
B) surplus of 0.8
C) shortage of 0.8
D) shortage of 0.6

Question 37

Suppose that the average cost of a doctor visit is $100. If the government imposes a price ceiling of $50 on the cost of a doctor visit, there will be:

A) an excess supply of doctor visits.
B) an excess demand for doctor visits.
C) an increase in the equilibrium number of doctor visits.
D) no change in the number of doctor visits.

Question 38

Use the following to answer question 24:
(Table: Market for Fried Twinkies) Use Table: Market for Fried Twinkies. In response to popular anger over the high price of fried Twinkies and the extreme wealth of fried Twinkie producers, the government imposes a price ceiling of $1.20 per fried Twinkie. From this table, the price ceiling causes a _____ fried Twinkies.

A) shortage of 3,000
B) shortage of 5,000
C) surplus of 8,000
D) surplus of 3,000

Question 39

Use the following to answer questions:
(Table: The Market for Soda) Use Table: The Market for Soda. If the government imposes a price ceiling of $1 per can of soda, the quantity of soda supplied will be _____ cans.

A) 7
B) 8
C) 9
D) 10

Question 40

The government decides to impose a price ceiling on a good because it thinks the market-determined price is too high. If it imposes the price ceiling above the equilibrium price:

A) consumers will respond to the higher price and therefore wish to purchase less of the good than at the equilibrium price.
B) producers will respond to the higher price and therefore offer fewer units for sale.
C) consumers will purchase less of the good after the price ceiling is imposed.
D) neither producers nor consumers will change their behavior.

Question 41

(Table: Market for Butter) Use Table: Market for Butter. If the government imposes a price ceiling of $0.90 per pound of butter, the quantity of butter actually purchased will be _____ million pounds.

A) 10.5
B) 9.0
C) 1.5
D) 10.0

Question 42

Use the following to answer questions:
(Figure: Supply and Demand) Use Figure: Supply and Demand. A price ceiling of P₃ causes:

A) a shortage equal to the distance AB.
B) a surplus equal to the distance AB.
C) a shortage equal to the distance DE.
D) no change to the market.

Question 43

Use the following to answer questions:
(Figure: The Market for Economics Textbooks) Use Figure: The Market for Economics Textbooks. Suppose the government believes textbooks are too expensive and it wants to make sure textbooks are affordable to more students. This type of price control is called a price _____, and one possible binding price control would be _____.

A) floor; $100
B) floor; $40
C) ceiling; $40
D) ceiling; $100

Question 44

Producers will sometimes lower the quality of a good when the government imposes:

A) any price control.
B) an excise tax.
C) a binding price floor.
D) a binding price ceiling.

Question 45

By definition, in a black market, goods or services are bought and sold:

A) at night.
B) without any information about quality.
C) without any information about price.
D) illegally.

Question 46

When a tenant in a rent-controlled apartment sublets the apartment to another renter at a rent higher than the price ceiling:

A) it is inefficient.
B) the transaction takes place on a black market.
C) there is an increase in quantity demanded.
D) there is a decrease in quantity demanded.

Question 47

Price ceilings will impose costs on society because they:

A) will eliminate long waiting lines.
B) may result in black markets, where prices are lower than the market-determined price would be.
C) lead to a smaller quantity offered on the market.
D) help businesses instead of consumers.

Question 48

If the government imposes binding rent control:

A) rent will be set above the equilibrium price.
B) it may result in some landlords leaving the business because they cannot cover costs.
C) it will lead to rental units being higher in quality because landlords are guaranteed a high price.
D) it will cause a surplus of housing.

Question 49

Black markets may develop as a result of price controls because:

A) price controls increase efficiency.
B) quantity demanded equals quantity supplied at the mandated price.
C) price controls offer subsidies for market transactions.
D) individuals can profit by illegal exchanges.

Question 50

If the government sets out to help low-income people by establishing a maximum amount that can be paid for rent:

A) a price floor has been set, and a shortage of rental units may occur.
B) a price ceiling has been set, and a shortage of rental units may occur.
C) in the long run, more rental units will appear.
D) the quality of rental units will be inefficiently high.

Question 51

(Figure: The Market for Hybrid Cars) Use Figure: The Market for Hybrid Cars. If there were a binding price ceiling in the market for hybrid cars, one possible price would be equal to _____; consumers would demand _____; and producers would supply _____.

A) P₁; Q₁; Q₃
B) P₂; Q₂; Q₂
C) P₁; Q₃; Q₁
D) P₃; Q₃; Q₁

Question 52

Use the following to answer questions:
(Figure: Supply and Demand) Use Figure: Supply and Demand. A binding price ceiling is represented by:

A) the price P₁.
B) the price P₂.
C) the price P₃.
D) point C.

Question 53

A price ceiling will not have an immediate effect if:

A) it is set above the equilibrium price.
B) the equilibrium price is above the price ceiling.
C) it is set below the equilibrium price.
D) it creates a shortage.

Question 54

Use the following to answer questions:
(Figure: The Market for Economics Textbooks) Use Figure: The Market for Economics Textbooks. At a price ceiling of $40, the market outcome would be a _____ of _____ textbooks.

A) surplus; 30
B) surplus; 10
C) shortage; 30
D) shortage; 10

Question 55

When price controls take the form of maximum prices set below the equilibrium price, they are:

A) illegal.
B) equal to the demand price.
C) price floors.
D) price ceilings.

Question 56

Rent controls usually set a price ceiling below the equilibrium price, and therefore:

A) quantity supplied exceeds the quantity demanded.
B) quantity demanded exceeds the quantity supplied.
C) a surplus of rental units will result.
D) all low-income recipients will clearly be helped.

Question 57

The Atlanta Symphony wants to make sure that its concerts are affordable for all residents of Atlanta and therefore prices all of its tickets at $25. However, outside Symphony Hall, people can sell the same tickets for $75 or more. The true cost to the concertgoer of a ticket to the symphony is at least:

A) $25.
B) $50.
C) $75.
D) $100.

Question 58

A maximum price legislated by the government is called:

A) a price support.
B) a price floor.
C) a price ceiling.
D) the parity price.

Question 59

Use the following to answer questions:
(Figure: Supply and Demand) Use Figure: Supply and Demand. A price ceiling of P₁ causes:

A) a shortage equal to the distance AB.
B) a surplus equal to the distance AB.
C) a shortage equal to the distance DE.
D) no change to the market.

Question 60

A persistent shortage may occur if:

A) the government imposes a price ceiling below the equilibrium price.
B) the government imposes a price floor below the equilibrium price.
C) demand keeps falling.
D) supply shifts rightward.

Question 61

All else equal, if a price floor above the equilibrium is imposed on a market and the government buys the surplus, consumer surplus will _____ and producer surplus will _____.

A) fall; rise
B) fall; fall
C) rise; fall
D) rise; rise

Question 62

A binding rent-control price ceiling does NOT result in:

A) inefficiently low transaction costs.
B) wasted resources of consumers caused by time spent searching for the good.
C) inefficient allocation of the good to consumers.
D) inefficiently high quality of the good being sold.

Question 63

The United States and the European Union impose price floors on many agricultural products. These price floors lead to unwanted surpluses. To deal with a surplus:

A) the U.S. government typically pays farmers to produce as much as possible.
B) the U.S. government in some cases has destroyed the surplus production.
C) the European Union pays farm exporters to sell products for a profit overseas.
D) the U.S. government holds auctions to sell the surplus to the highest bidder.

Question 64

Which inefficiency is NOT caused by binding price ceilings?

A) inefficient allocation to consumers
B) wasted resources
C) potential illegal activity
D) inefficient allocation of sales among sellers

Question 65

One of the ways rent control is inefficient is that it leads to:

A) higher-quality apartments.
B) high opportunity costs associated with wasted time searching for apartments.
C) markets that maximize total surplus.
D) the construction of more apartments.

Question 66

Economists in general agree that rent controls are:

A) an efficient and equitable way to help low-income families.
B) an inefficient but sometimes effective way to help low-income families.
C) an efficient method of dealing with the shortages caused by price ceilings.
D) the only way to solve the problem of poverty.

Question 67

Suppose the government of the oil-rich country Saudi Arabia sets gasoline prices at $0.25 per gallon when the market price is $1.50. The Saudi government's actions will:

A) improve efficiency since the low prices will force producers to find cheaper production methods.
B) result in gasoline surpluses even in an oil-rich country.
C) cause gasoline shortages even in an oil-rich country.
D) necessarily improve equality between rich and poor since the poor can now afford gasoline.

Question 68

Suppose the government sets a price floor of $2.85 per bushel on corn when the current price is $2.55. This price floor will:

A) cause a surplus of corn.
B) cause a shortage of corn.
C) have no immediate effect on the price of corn.
D) increase the supply of corn.

Question 69

(Figure: Supply and Demand) Use Figure: Supply and Demand. A binding price floor is represented by:

A) P₁.
B) P₂.
C) P₃.
D) point C.

Question 70

Price controls encourage black markets because:

A) they eliminate opportunity costs.
B) individuals can profit by illegal exchanges.
C) they create too much efficiency.
D) they create too much equity.

Question 71

Use the following to answer questions:
(Figure: The Market for Butter) Use Figure: The Market for Butter. If a government price floor of $1.30 is imposed on this market, an inefficiency will result in the form of a _____ of _____ million pounds of butter.

A) surplus; 4.5
B) surplus; 6.0
C) shortage; 6.0
D) shortage; 4.5

Question 72

Use the following to answer questions:
(Figure: The Market for Butter) Use Figure: The Market for Butter. If a government price floor of $1.20 is imposed on this market, an inefficiency will result in the form of a _____ of _____ million pounds of butter.

A) surplus; 4.5
B) shortage; 4.5
C) surplus; 1.5
D) shortage; 1.5

Question 73

West African cotton farmers are very upset about the subsidies the U.S. government pays to American cotton farmers. One reason for this could be that subsidized cotton from the United States:

A) leads to cotton surpluses in the United States and lower prices for West African farmers on world markets.
B) raises the world price of cotton.
C) has led to a global shortage of cotton.
D) has led to an increase in the demand for West African cotton.

Question 74

In a(n) _____ market, goods or services are bought and sold illegally.

A) black
B) uncontrolled
C) unregulated
D) unproductive

Question 75

Which example would be considered a black market transaction?

A) a tenant in a rent-controlled apartment subletting at a higher rent
B) the purchase of an inferior radio at a department store
C) waiting in line during the gasoline shortages of the 1970s
D) the oil market

Question 76

Rent controls in New York City do NOT cause:

A) inefficiently low-quality apartments.
B) wasted resources resulting from the opportunity cost of time associated with trying to find an apartment.
C) black markets.
D) an increase in the quantity supplied of rent-controlled apartments.

Question 77

Use the following to answer question 72:
(Table: The Market for Soda) Use Table: The Market for Soda. If the government imposes a price floor of $1 per can of soda, there will be:

A) a shortage of two cans.
B) a shortage of three cans.
C) a surplus of three cans.
D) equilibrium in the market for soda.

Question 78

(Table: Market for Butter) Use Figure: Market for Butter. If the government imposes a price floor of $0.90 per pound of butter, the quantity of butter actually purchased will be _____ million pounds.

A) 10.5
B) 9.0
C) 1.5
D) 10.0

Question 79

A price ceiling below the equilibrium price is likely to result in a persistent _____, a transfer of surplus from _____, and _____ deadweight loss.

A) surplus; producers to some consumers; some
B) shortage; producers to some consumers; some
C) shortage; some consumers to producers; no
D) surplus; some consumers to producers; some

Question 80

Governments continue to impose price controls. Which statement is NOT a valid reason for this?

A) Some people do benefit from such price controls.
B) People fear that prices will change dramatically if the price controls are removed.
C) It is politically expedient to enact regulations that benefit influential voting groups.
D) Price controls are always effective.