Deck 5: Markets in Action

Question 1

For a price floor to be binding, it must be set

A) at the free-market equilibrium price.
B) very low.
C) at a level such that there exists some unsatisfied demand.
D) above the free-market equilibrium price.
E) below the free-market equilibrium price.

Answer 1

D

Question 2

An excess demand for some product is the same thing as

A) back market.
B) an excess supply.
C) a shortage.
D) a surplus.
E) price ceiling.

Answer 2

C

Question 3

Output quotas are commonly used in markets for

A) agricultural products.
B) textiles.
C) financial products.
D) imported goods.
E) exported goods.

Answer 3

A

Question 4

The table below shows the total value (in dollars) that Andrew gets from playing 9-hole rounds of golf. TABLE 6-3
A predictable result of the imposition of binding price floors or price ceilings is

A) surpluses.
B) a reduction in quantities exchanged.
C) production control by the government.
D) shortages.
E) a more equitable distribution of commodities.

Question 5

A binding price floor is a

A) minimum price, below equilibrium, which price is not allowed to fall below.
B) any minimum price which price is not allowed to fall below.
C) maximum price, below equilibrium, which price is not allowed to exceed .
D) minimum price, above equilibrium, which price is not allowed to fall below.
E) maximum price, above equilibrium, which price is not allowed to exceed.

Question 6

Consider the market for pulp and paper. Suppose, in an attempt to help this industry, thegovernment sets a price floor above the free-market equilibrium price. The result will be:

A) a new free-market equilibrium at a higher price and lower output level.
B) a continuation of the market-determined equilibrium price and quantity.
C) the quantity supplied will exceed quantity demanded and there will be a surplus in the market.
D) increased government revenue.
E) the quantity demanded will exceed quantity supplied and there will be a shortage in the market.

Question 7

If the equilibrium price for some product is $1000, a price ceiling of $800 will result in

A) massive surpluses of the good.
B) the same general effects as a price ceiling of $600.
C) no effects because the price ceiling is not binding at that price.
D) the same general effects as a price ceiling of $1200.
E) the same general effects as a price floor of $1200.

Question 8

The diagram below shows the market for apartments in a city. Assume that all apartments are identical. FIGURE 5-4
Which of the following statements best differentiates price ceilings and price floors?

A) Price ceilings represent minimum prices, while price floors represent maximum prices.
B) Binding price ceilings are always set below the equilibrium price, whereas binding price floors are always set above the equilibrium price.
C) Price ceilings and price floors have the same effects.
D) Price floors cause shortages to appear, whereas price ceilings have the opposite effect.
E) Price ceilings are always effective, whereas price floors are rarely effective.

Question 9

The surpluses associated with a binding price floor will be the smallest when

A) supply is highly elastic and demand is highly inelastic.
B) both supply and demand are unit elastic.
C) both supply and demand are highly inelastic.
D) both supply and demand are highly elastic.
E) supply is highly inelastic and demand is highly elastic.

Question 10

If the free-market equilibrium price for some product is $25, then a legal price ceiling set at $15 willbring about

A) a surplus of the good.
B) the same general effects as an equilibrium price of $15.
C) no change in the market outcomes.
D) the same general effects as a price ceiling of $25.
E) a shortage of the good.

Question 11

The diagram below shows the market for apartments in a city. Assume that all apartments are identical. FIGURE 5-4
Refer to Figure 5-4. Suppose the government imposes a rent-controlled price of $600 per month on apartments in this city. In the short run we can expect the shortage of apartments to be units.

A) 300
B) 200
C) 1000
D) 0
E) 800

Question 12

The table below shows the total value (in dollars) that Andrew gets from playing 9-hole rounds of golf. TABLE 6-3
Suppose the government decides to eliminate a binding price floor that it had previously imposedon a particular good. It can be expected that

A) the price would increase, the quantity demanded would decrease and the quantity supplied would increase.
B) the price would decrease, the quantity demanded would increase and the quantity supplied would decrease.
C) the price would increase, the quantity demanded would increase and the quantity supplied would decrease.
D) the price would decrease, the quantity demanded would decrease and the quantity supplied would increase.
E) no changes would take place.

Question 13

Which of the following is an example of a black-market transaction?

A) A person buys a hotdog on a street corner.
B) A person buys a product at a price greater than the price floor.
C) A person buys a product at a price greater than the ceiling price.
D) A person places a bet at a racetrack.
E) A person buys a product at a price below the ceiling price.

Question 14

If the government imposes a price ceiling for some product, and a black market subsequently develops that gains control of all of the reduced output of the product, then

A) the quantity demanded will exceed quantity supplied at the black market price.
B) the black market price will be lower than the ceiling price.
C) consumers will be better off than they would be in the absence of the black market.
D) excess profits will flow back to consumers.
E) the black market price will be higher than the free-market equilibrium price.

Question 15

The diagram below shows the market for apartments in a city. Assume that all apartments are identical. FIGURE 5-4
In practice, legislated rent controls are usually intended

A) to increase the demand for rental housing and to discourage private ownership of low-cost rental housing developments.
B) to stimulate employment in the construction industry through the increased demand for new houses.
C) to prevent landlords from making excess profits and to protect low-income tenants from increases in the cost of housing.
D) to stabilize volatile rents, and thus to make the investment climate less uncertain for prospective investors in this sector.
E) to prevent landlords from making excess profits and to reduce the long-term quantity of rental housing.

Question 16

A legally imposed upper limit on a price is called

A) a price support.
B) a government price.
C) a price floor.
D) a price ceiling.
E) an excise price.

Question 17

Who are likely to be the biggest beneficiaries of rent controls?

A) prospective tenants
B) no group will benefit from the controls
C) construction companies
D) landlords
E) current tenants

Question 18

The diagram below shows the market for apartments in a city. Assume that all apartments are identical. FIGURE 5-4
Refer to Figure 5-4. Suppose the government imposes a rent-controlled price of $600 per month on apartments in this city. In the long run we can expect the shortage of apartments to be _ units.

A) 300
B) 800
C) 1000
D) 0
E) 200

Question 19

Each point on a supply curve shows the _ _ acceptable price to firms for selling that unit; this price reflects to firms from producing that unit.

A) maximum; the additional value
B) maximum; the additional cost
C) minimum; the equilibrium price
D) minimum; the additional value
E) minimum; the additional cost

Question 20

Consider the Canadian market for barley. Suppose a marketing board sets a production quota which is below the equilibrium quantity. The quota will cause the price of barley to and the total revenue earned by Canadian barley farmers to .

A) fall; fall if demand is elastic.
B) remain unchanged; remain unchanged.
C) rise; rise if demand is inelastic.
D) fall; fall if demand is inelastic.
E) rise; rise if demand is elastic.

Question 21

Which of the following is true of price ceilings?

A) Firms must charge the price established as a price ceiling.
B) A ceiling price below the free-market equilibrium price is not binding.
C) If the ceiling price is set above the free-market equilibrium price it will have no effect on the market.
D) With a non-binding ceiling price an excess demand for the product will develop.
E) With a binding ceiling price a surplus of the commodity will develop.

Question 22

The long-run elasticity of supply of rental housing is greater than the short-run elasticity of supply because

A) changes in supply occur only after investment decisions are made regarding, for example, new construction or conversion of rental housing to other uses.
B) changes in supply can occur very quickly, especially when rent controls are in place.
C) in the long run, landlords have no incentive to alter the supply of rental housing.
D) the demand for rental housing is changing continuously.
E) investment in new rental housing has such a short payback period.

Question 23

The diagram below shows the market for apartments in a city. Assume that all apartments are identical. FIGURE 5-4
Refer to Figure 5-1. With a price ceiling of P3, how large will the resulting shortage be?

A) AF
B) FC
C) FD
D) AC
E) BC

Question 24

Suppose that the free-market equilibrium price of natural gas would be $2.00 per unit, but toprotect consumers the government has fixed the price at $1.50. At this ceiling price the quantitywill be greater than the quantity _, resulting in a _ of natural gas.

A) demanded; supplied; shortage
B) demanded; supplied; reduction in equilibrium price
C) demanded; supplied; surplus
D) supplied; demanded; surplus
E) supplied; demanded; shortage

Question 25

A legal price ceiling, if it is binding, is a

A) maximum price, above equilibrium, which price is not allowed to exceed.
B) maximum price, below equilibrium, which a price is not allowed to exceed.
C) any maximum price which price is not allowed to exceed.
D) minimum price, above equilibrium, which price is not allowed to fall below.
E) minimum price, below equilibrium, which price is not allowed to fall below.

Question 26

In free and competitive markets, surpluses are eliminated by

A) price decreases.
B) price increases.
C) government purchases.
D) government price controls.
E) black markets.

Question 27

Geoff is willing to pay $13 for a sixth entrance to a mountain bike park. The market price for entrance is $10.50. The bike park is willing to accept $8.75. The total economic surplus generated from Geoff's sixth trip to the bike park is

A) $4.25.
B) $1.75.
C) $10.50.
D) $2.50.
E) $13.00.

Question 28

The diagram below shows the market for litres of milk.
FIGURE 5-8

Refer to Figure 5-8. After the imposition of a milk quota at quantity Q₁, economic surplus is represented by

A) areas 3 and 4.
B) areas 1, 2 and 3.
C) areas 2, 3, 5 and 6.
D) areas 1, 2 and 5.
E) areas 1, 2, 3, 4, 5, 6 and 7.

Question 29

Partial-equilibrium analysis considers

A) all markets simultaneously, recognizing the interactions among the various markets.
B) a specific market while ignoring any feedback effects that may come from induced changes in other markets.
C) how government planning can improve upon the results of a free market.
D) only the existence of a market equilibrium, as if no other markets exist.
E) the linkages between markets specifically.

Question 30

The diagram below shows the market for apartments in a city. Assume that all apartments are identical. FIGURE 5-4
Refer to Figure 5-2. A price floor set at $2.50 will result in

A) a surplus of 5 units.
B) a surplus of 10 units
C) a shortage of 10 units.
D) a shortage of 5 units.
E) no change to the market outcomes.

Question 31

In competitive markets, price floors and price ceilings usually lead to

A) more equitable distributions of commodities.
B) surpluses.
C) production control by the government.
D) shortages.
E) a reduction in quantities exchanged.

Question 32

The short-run supply for housing is quite while the long-run supply for housing is quite.

A) inelastic; elastic
B) elastic; inelastic
C) flat; steep
D) inelastic; inelastic
E) elastic; elastic

Question 33

In general (and in the absence of market failures), economic surplus will be maximized and economic efficiency will be achieved

A) when consumers and producers can agree on the most advantageous division of economic surplus.
B) when the government is able to impose an equilibrium price.
C) when resources are allocated such that production of the good is maximized.
D) in a competitive market where price is free to achieve its market-clearing equilibrium level.
E) when the government successfully determines what is best for society as a whole.

Question 34

The diagram below shows the market for litres of milk.
FIGURE 5-8

Refer to Figure 5-8. Suppose that a binding output quota is imposed on this market at quantity Q₁.The loss in economic surplus due to the quota is equal to

A) areas 5 and 6.
B) areas 2 and 5.
C) areas 5, 6 and 7.
D) areas 1, 2 and 3.
E) area 1.

Question 35

The diagram below shows the market for apartments in a city. Assume that all apartments are identical. FIGURE 5-4
Refer to Figure 5-4. The difference between supply curve S₁ and supply curve S₂ in this market for apartments is that

A) S₁ is not affected by a government controlled rental price.
B) S₂ is not affected by a government controlled rental price.
C) S₁ is a short-run supply curve and S₂ is a long-run supply curve.
D) S₁ is a long-run supply curve and S₂ is a short-run supply curve.
E) S₁ is more elastic than S₂.

Question 36

Suppose a binding output quota is imposed in a previously competitive market with free-market equilibrium price and quantity. The result is

A) higher price and lower quantity exchanged.
B) higher price and higher quantity exchanged.
C) no change in price or quantity exchanged.
D) lower price and higher quantity exchanged.
E) lower price and lower quantity exchanged.

Question 37

Consider Canada's east coast lobster fishery. Suppose the government sets a production quotawhich is below the equilibrium quantity. Relative to the free-market equilibrium, we can expect the result to be

A) an increase in price and a decrease in deadweight loss.
B) an increase in price and the introduction of a deadweight loss.
C) a decrease in price and a decrease in deadweight loss.
D) a decreased price.
E) the free-market equilibrium price and quantity because the quota is not binding.

Question 38

The shortage of housing that exists in the presence of binding rent controls is smaller

A) the longer is the length of time the rent controls are in place.
B) the higher is the elasticity of demand for housing.
C) the more elastic is the long-run supply of housing.
D) the lower is the elasticity of supply of housing.
E) the greater is the difference between the equilibrium price and the rent-controlled price.

Question 39

The diagram below shows the market for apartments in a city. Assume that all apartments are identical. FIGURE 5-4
Refer to Figure 5-4. Suppose the government sets a rent ceiling at Price B, $900. In this situation, if all apartments are rented on the black market, then the rent for an apartment is

A) any rent above $900.
B) any rent below $600.
C) $900.
D) $600.
E) the same as the free-market equilibrium rental price.

Question 40

Consider the market for any agricultural commodity for which there exists a binding output quota and demand is inelastic. Any individual producer has a clear financial incentive to

A) limit production of the commodity.
B) produce beyond the individual quota amount.
C) leave the market.
D) stop producing.
E) give away their quota.

Question 41

If the government imposes a price ceiling on rental housing that is below the market-clearing price,the resulting shortage will be

A) greater the more elastic the demand for rental housing.
B) greater the more recently the controlled price went into effect.
C) diminished over time.
D) smaller the longer the controlled price has been in effect.
E) smaller the more elastic the demand for rental housing.

Question 42

A minimum permissible price established by the government is called

A) the margin price.
B) the equilibrium price.
C) a price ceiling.
D) the fair price.
E) a price floor.

Question 43

Assuming that the long-run supply of housing is highly elastic, the imposition of binding rentcontrols will lead to

A) no significant change in the housing shortage over time.
B) a reduction in the housing shortage over time.
C) only a temporary housing shortage.
D) the price of rental housing to revert back to its free-market equilibrium level.
E) a worsening of the housing shortage over time.

Question 44

Suppose the free-market equilibrium price for ice time at privately operated hockey arenas is $250 per hour. If the municipal government imposes a price ceiling of $130 per hour, we can expect to see

A) an excess supply of ice time.
B) an adjustment of the free-market equilibrium price to $100.
C) an excess demand for ice time.
D) that neither excess supply nor excess demand is created.
E) a black market price below the free-market equilibrium price.

Question 45

The price of a good or a service can be determined by free interaction of demand and supply or bya government price regulation. One important difference between these two price-determining methods is

A) that a regulated price above the equilibrium price will always result in shortages.
B) there are no shortages or surpluses at the free-market equilibrium price.
C) one is capitalist and the other is communist.
D) regulated prices are fairer since more people can then afford the goods or services.
E) the government is in the best position to know the needs of the people.

Question 46

If the equilibrium price for some product is $1000, a price ceiling of $1200 will result in

A) the same general effects as an administered price of $1200.
B) massive surpluses of the good.
C) the same general effects as a price floor of $1200
D) no effects because the price ceiling is not binding at that price.
E) the same general effects as a price ceiling of $600.

Question 47

Partial-equilibrium analysis is a legitimate method of analysis if the market being studied

A) is in the manufacturing sector of the economy.
B) is large relative to the entire economy such that the feedback effects are obvious to the analyst.
C) is small relative to the entire economy, such that feedback effects on the market being studied are significant.
D) is in the financial sector of the economy.
E) is small relative to the entire economy, such that feedback effects on the market being studied are small.

Question 48

Deadweight loss represents

A) the overall loss of economic surplus to society that occurs when markets are inefficient.
B) the loss of economic surplus to consumers.
C) the loss of consumption that occurs when a binding price floor or ceiling is imposed.
D) the total market value of the goods no longer produced when quantity exchanged is below the equilibrium quantity.
E) the loss of production that occurs when a binding price floor or ceiling is imposed.

Question 49

If a specific market is quite small relative to the entire economy

A) government intervention is necessary to link it to other markets.
B) partial-equilibrium analysis is the only tool available to understand this market.
C) general-equilibrium analysis will be necessary in order to understand this market.
D) the feedback effects on this market from induced changes in other markets will be very small.
E) changes in this market will have considerable effects on other markets.

Question 50

In the short run, the supply of rental accommodations tends to be

A) very price elastic.
B) unit price elastic.
C) very or completely price inelastic.
D) irrelevant to the housing market price.
E) infinitely price elastic.

Question 51

Consider a market that is in equilibrium with a market-clearing price. Economic surplus is shown by

A) the area that is both below the demand curve and above the supply curve.
B) the area to the right of the market-clearing price and quantity.
C) the intersection of the supply and demand curves.
D) the area below the supply curve up to the equilibrium quantity and below the demand curve beyond the equilibrium quantity.
E) the area that is both above the demand curve and below the supply curve.

Question 52

If at some administered price there is excess demand,

A) the market is in its free-market equilibrium.
B) none of the product will be exchanged.
C) the market is in disequilibrium.
D) there are unsuccessful sellers.
E) the product has not reached the point of saturation.

Question 53

If a binding price ceiling is in place and if the demand curve for the product shifts rightward, oneconsequence would be

A) the quantity exchanged would increase.
B) a decrease in the amount of excess demand.
C) the quantity exchanged would remain constant.
D) the quantity exchanged would decrease.
E) an increase in the amount of excess supply.

Question 54

With respect to some commodity, X, if government objectives are to (1) restrict production and (2)keep prices down to protect consumers, then legislated price ceilings will

A) be a dismal failure as neither goal can ever be achieved with price ceilings.
B) satisfy both goals as long as a black market does not develop.
C) only have an effect on commodities at the international level.
D) satisfy only the second goal if a black market develops.
E) satisfy both goals but only if a black market develops.

Question 55

Each point on a demand curve shows the _ price that consumers will pay to consume thatquantity. The demand curve therefore shows the to consumers from consuming theproduct.

A) maximum; cost
B) minimum; value
C) minimum; cost
D) equilibrium; equilibrium price
E) maximum; value

Question 56

If a binding price floor is in place and if the demand curve for the product shifts rightward, one consequence would be

A) an increase in the amount of excess demand.
B) a decrease in the amount of excess supply.
C) a decrease in the quantity exchanged.
D) a decrease in the amount of excess demand.
E) an increase in the amount of excess supply.

Question 57

The shortages associated with a binding price ceiling will be the smallest when

A) both supply and demand are highly elastic.
B) supply is highly inelastic and demand is highly elastic.
C) supply is highly elastic and demand is highly inelastic.
D) both supply and demand are highly inelastic.
E) none of the above-the size of the shortage has nothing to do with demand and supply elasticities.

Question 58

The use of legislated rent controls typically

A) affects the distribution of income between tenants and landlords and also affects the availability of rental accommodations.
B) has no effect on the distribution of income between tenants and landlords but does affect the supply of rental accommodations.
C) has no effect on the distribution of income between tenants and landlords or on the availability of rental accommodations.
D) has much worse effects in the short run than in the long run.
E) affects the distribution of income between tenants and landlords but does not affect the supply of rental accommodations.

Question 59

In competitive markets, binding price floors and binding price ceilings lead to

A) a reduction in deadweight loss.
B) an overall increase in economic surplus, and therefore to market efficiency.
C) a maximization of economic surplus.
D) fairer prices for consumers and producers, and therefore are better for society as a whole.
E) an overall reduction in economic surplus, and therefore to market inefficiency.

Question 60

If a binding price ceiling is in effect and if the demand for the product increases, one consequence would be

A) an increase in the amount of excess demand.
B) a decrease in the amount of excess supply.
C) a decrease in the amount of excess demand.
D) no change in the excess supply or demand for the product.
E) an increase in the amount of excess supply.

Question 61

One measure of market inefficiency is

A) the size of the deadweight loss.
B) the size of the economic surplus.
C) how far quantity exchanged deviates from equilibrium.
D) how far market price deviates from equilibrium.
E) the difference between total economic surplus and deadweight loss.

Question 62

A price ceiling set below the free-market equilibrium price will result in

A) excess supply.
B) a clearing of the market.
C) surpluses.
D) excess demand.
E) greater quantity exchanged.

Question 63

Concert promoters often set ticket prices below what they expect the market-clearing price to be.They are effectively imposing a and the result is often at a considerably higherprice.

A) price ceiling; a surplus
B) fair price; excess tickets
C) price ceiling; ticket scalping
D) price floor; a shortage
E) price floor; ticket scalping

Question 64

If the government fixes the price of good X above its free-market equilibrium level, we should expect

A) a shortage of good X to occur.
B) a new free-market equilibrium price to be established.
C) a surplus of good X to occur.
D) an excess demand for good X.
E) a black market to arise for good X.

Question 65

Consider the market for iron ore, an important industrial input. Suppose the government sets aprice floor below the free-market equilibrium price. The result will be

A) a continuation of the free-market equilibrium price and quantity.
B) the quantity demanded will exceed quantity supplied and there will be a shortage in the market.
C) increased government revenue.
D) a new free-market equilibrium at a lower price and higher output level.
E) the quantity supplied will exceed quantity demanded and there will be a surplus in the market.