Deck 6: Price Ceilings and Price Floors

Question 1

A reduction in the number of farms in the United States has caused food production to fall.

Answer 1

False

Question 2

In the United States, the parity system and commodity support program have historically covered only three basic farm products: wheat, corn, and tobacco.

Answer 2

False

Question 3

Price supports can help farmers to better compete internationally.

Answer 3

False

Question 4

Usury laws first originated in the United States in the 1970s in response to high market interest rates.

Question 5

To be effective, a price ceiling must be below the market equilibrium price.

Question 6

A lottery is the only fair means in which to ration a good.

Question 7

Governments establish price floors when it is believed the market equilibrium price is too high.

Question 8

A price floor establishes a minimum price, and a price ceiling establishes a maximum price

Question 9

Intervention by the U.S. government in the pricing of farm products began only after the post-World War II period.

Question 10

U.S. law requires that parity price ratios be maintained at 100 percent.

Question 11

A ration coupon limits how much a producer can produce.

Question 12

Ration coupons are typically associated with price floors.

Question 13

The parity price ratio is the ratio of the prices farmers receive from selling their goods to the prices farmers pay when they buy consumer goods, such as shoes.

Question 14

If the demand for consumer goods increases, the parity price ratio falls.

Question 15

There is a trade-off between having prices that the government believes are too low and having a chronic excess supply.

Question 16

Because nothing in life is free, the cost of a price ceiling program is chronic excess supply.

Question 17

Price ceilings make the decision about how to ration goods very easy for the government.

Question 18

Price ceilings are only effective when they are placed below the market equilibrium price.

Question 19

If the price for a good was $5 and the government wanted the price to be $10, it would impose a $5 price floor.

Question 20

Parity price programs were designed to help farmers, not consumers of farm goods.

Question 21

A price ceiling disrupts markets because the price is set too low.

Question 22

If the equilibrium price of compact discs is $12, but a price ceiling of $9 is imposed, there is likely to be a surplus of compact discs.

Question 23

If a surplus accumulates as the result of agricultural support prices, the government must buy it; otherwise the support price cannot be maintained.

Question 24

A government policy to improve farm incomes by supporting agricultural prices at a level above equilibrium will reduce consumer's surplus

Question 25

Price ceilings during times of war cause consumers' surplus to fall relative to its magnitude without market intervention.

Question 26

Government intervention in the marketplace for the purpose of influencing prices should be done whenever the opportunity cost of such actions falls to zero.

Question 27

Setting concert ticket prices below their market clearing level replaces monetary with nonmonetary costs.

Question 28

University tuitions are normally set at market clearing levels, which is why closed enrollment announcements are necessary.

Question 29

-In Exhibit F-1 a $25 ceiling price on campus rock concert tickets will yield a ticket surplus of 700 tickets.

Question 30

-In Exhibit F -1 a $25 ceiling price on campus rock concert tickets results in the loss of $18,000 for the student organization sponsoring the rock concert.

Question 31

-In Exhibit F -1 a $25 ceiling price on campus rock concert tickets results in the loss of $7,000 for the student organization sponsoring the rock concert.

Question 32

-In Exhibit F -1 a $25 ceiling price on campus rock concert tickets results in the loss of $25,000 for the student organization sponsoring the concert.

Question 33

-In Exhibit F -1 a $25 ceiling price on campus rock concerts results in a loss of _____ for the student organization sponsoring the event.

A) $18,000
B) $25,000
C) $7,000
D) $63,000
E) $37,500

Question 34

Rationing schemes are often used during times of war because

A) the market will not come to equilibrium
B) military forces cannot afford war supplies
C) high prices erode popular support for the war effort
D) it is a windfall gain to the typical consumer
E) short lines are better than short pocket books

Question 35

Suppose that nurses' salaries are set at a guaranteed minimum. We would expect all of the following to be true except

A) the market clearing wage rises above the minimum
B) more nurses offer to work overtime hours
C) hospital wage bills rise
D) the long-term supply of nurses expands
E) more nurse training programs develop

Question 36

One could argue that price ceilings should not be placed on the goods sold at the high price "Quick Stop Shop" stores for all of the following reasons except:

A) cash price is not true price
B) convenience has a value
C) time has a value
D) the price of gasoline sold at the store is already controlled
E) check out is fast at the "Quick Stop Shop"

Question 37

According to the text, a military draft is most likely to have which of the following effects on the market for fish? It will

A) increase the supply
B) increase the demand
C) decrease the supply
D) decrease the demand
E) lower the price

Question 38

When the government issues ration coupons, it is an indication that government has prohibited the use of which rationing mechanism?

A) merit
B) military service
C) family size
D) price
E) age

Question 39

Here's a taste of economic history: in the United States, the government's Office of Price Administration (OPA) introduced a rationing system in

A) 1929
B) 1932
C) 1942
D) 1967
E) 1973

Question 40

A price floor is a

A) fixed point on the supply curve that represents the lowest price a producer will accept
B) fixed point on the demand curve that represents the lowest price a consumer will pay
C) minimum price set by the government that is positioned above the equilibrium price
D) maximum price set by the government that is positioned above the equilibrium price
E) maximum price set by the government that is positioned below the equilibrium price

Question 41

A consequence of imposing a price floor is that

A) the new price (or price floor) is below the old equilibrium price
B) an excess supply of the good is created at the floor price
C) an excess demand for the good is created at the floor price
D) the supply of the good decreases
E) the demand for the good increases

Question 42

Here's a taste of history: from 1775 to the present, U.S. agricultural productivity has grown because of all of the following except

A) new fertilizers and pesticides
B) the development of the tractor
C) the use of horses and mules
D) price ceilings on food goods
E) rural electrification

Question 43

Because of ongoing changes in farm technology over the last two centuries, the average farm size in the U.S.

A) increased, and the number of farms decreased
B) increased, and the number of farms increased
C) stayed virtually the same, but the number of farms decreased
D) decreased, and the number of farms increased
E) decreased, and the number of farms decreased

Question 44

Farm productivity per acre grew most rapidly after

A) the Revolutionary War
B) the Civil War
C) World War I
D) the 1929 stock market crash
E) World War II

Question 45

Suppose the government believes that the equilibrium price established on the market by the forces of supply and demand is too low and, to correct it, sets a minimum price. That is to say, price is allowed to be higher, but it cannot be lower than that minimum. Economists call that minimum price a(n)

A) price ceiling
B) price floor
C) parity price
D) deficiency price
E) equilibrium price

Question 46

Here's a rather specific question concerning U.S. historical agricultural data. Which of the following increased fivefold from 1950 to 1980?

A) number of farms
B) use of horses and mules per farm
C) number of farmers
D) use of chemical fertilizers per acre
E) acreage needed to feed horses and mules

Question 47

Agriculture's share of total output in the U.S. has declined throughout the 20th century, although the absolute value of farm output has increased. The number of U.S. farms grew in the early part of the century, then began to steadily fall. The number of U.S. farms peaked in which of the following decades?

A) 1910-1919
B) 1970-1979
C) 1930-1939
D) 1950-1959
E) 1980-1999

Question 48

The effect of improvements in food-producing technology can be shown graphically by

A) rightward shifts in the supply curve of food
B) leftward shifts in the supply curve of food
C) rightward shifts in the demand curve for food
D) leftward shifts in the demand curve for food
E) both leftward shifts in the demand curve for and the supply curve of food

Question 49

When increases in the demand for food-shown as rightward shifts in the demand curve-are relatively small when compared to the increases in food supply-shown as right wardshifts in the supply curve-equilibrium price

A) rises and equilibrium quantity falls
B) falls and equilibrium quantity falls
C) rises and equilibrium quantity rises
D) falls and equilibrium quantity rises
E) and equilibrium quantity stay the same

Question 50

In what decade did the U.S. government first decide to intervene in the farm economy?

A) 1950s
B) 1930s
C) 1970s
D) 1960s
E) 1980s

Question 51

The government's decision to come to the aid of farmers was made, in part, because the government feared that

A) farms were becoming too large and inefficient as a result of continuous changes in farm technology
B) because food prices had become so high, low-income families were unable to maintain a minimal nutritional diet
C) falling farm prices would depress the farm economy and that depression would spread to other sectors of the economy
D) price supports would distort farm prices
E) insufficient food supplies would be produced to feed a growing population

Question 52

The intent of parity pricing in the farm industry is to

A) drive inefficient farmers out of business
B) allow a market to reach its equilibrium price
C) provide only low-income farmers with government aid
D) increase farm productivity with new technologies
E) maintain farmers' purchasing power relative to nonfarmers

Question 53

Economists use the term parity to describe government's farm policy because it conveys the meaning of

A) unevenness
B) equilibrium
C) piecemeal or part of
D) equality
E) laissez-faire

Question 54

The benchmark, or reference, years used to calculate parity prices is

A) 1910-1914
B) 1920-1924
C) 1930-1934
D) 1940-1944
E) 1952-1956

Question 55

The 1910-1914 period was chosen as a benchmark period for determining parity prices because that was when

A) there was the greatest number of farms
B) corn prices were the highest
C) farmers believed that farm and nonfarm prices were such that farms goods traded equal value for equal value with nonfarm goods
D) the exchange standard was most biased in favor of farmers
E) farm productivity was the lowest

Question 56

If Sam, a farmer in 1963, finds that he needs two bushels of corn to buy what his grandfather bought with one bushel during the 1910-1914 benchmark period, then

A) Sam is twice as well off in 1963 than his grandfather was
B) farm productivity has declined by half over this period
C) the equilibrium price of corn has obviously doubled
D) a price floor that provides parity should be double the 1963 market price
E) Sam will have to leave the farm

Question 57

-A technological advance is shown in Exhibit F-2. It results in a

A) shift to the right in the supply curve and the price falling from $5 to $3
B) shift to the left in the supply curve and the price falling from $5 to $1
C) shift to the right in the supply curve and the price falling from $3 to $1
D) movement along the demand curve and the price increasing from $1 to $3
E) movement along the demand curve and the price increasing from $1 to $5

Question 58

-After the technological change shown in Exhibit F-2, the government introduces a $5 price floor. This price floor creates an excess supply of

A) 20
B) 26
C) 28
D) 33
E) 46

Question 59

-Suppose there is a technological change and the government does not intervene in the market of Exhibit F-2. Then farmers' revenue will

A) decrease from $165 to $73
B) decrease from $200 to $73
C) stay the same
D) increase from $200 to $430
E) increase from $165 to $430

Question 60

The parity price ratio is defined by the equation

A)
B)
C)
D)
E)

Question 61

With parity pricing in agriculture, farmers

A) earn higher incomes now than nonfarmers
B) fared relatively well during the Depression years of the 1930s
C) have seen a persistent downward movement in their purchasing power
D) did relatively poorly during the 1920s
E) face a declining demand for food in the United States

Question 62

Farm prices were relatively high in the United States in the 1970s primarily because of

A) increasing world demand for food
B) increasing world supply for food
C) increases in parity prices
D) decreases in target prices
E) downturns in Third World economies

Question 63

The European Community, like the United States government prior to 1985,

A) bought large quantities of farm surpluses
B) cut subsidies to farmers
C) discouraged farmers from exporting to over-supplied world markets
D) discouraged farmers from applying new technology to their fields
E) significantly reduced the taxpayer costs for supporting farm prices

Question 64

According to the article cited in the text, recently proposed European farm policy reform was met by

A) support by small farmers
B) support by large farmers
C) protests by consumers
D) resistance by taxpayers
E) demonstrations by French farmers

Question 65

Which of the following was a component of he Freedom to Farm Act of 1996?

A) withholding of farm acreage from production
B) shifting the food supply curve to the left
C) fixed cash payments to farmers from 1996 to 2002
D) rewarding participating farmers by giving them some crops to sell
E) reducing the cash amounts paid out as deficiency payments

Question 66

"Take thou no usury of him, or increase, but fear thy God, that thy brother may live with thee" (Leviticus 25:36). Thus biblical instruction was the foundation for usury laws, both ancient and modern, and to an economist represent an early example of

A) price floors
B) price ceilings
C) target prices
D) deficiency payments
E) market-determined prices

Question 67

The constitutional right to enact usury laws in the United States

A) results in excessive interest paid by borrowers
B) represents a price floor for borrowed money
C) reinforces our belief in the market system
D) still belongs to state governments
E) does not exist

Question 68

Consumers and producers face each other in the many markets of our economy, and in most of these markets,

A) price floors dominate
B) price ceilings dominate
C) market prices dominate
D) government intervention is commonplace
E) parity exists between the farm and nonfarm goods

Question 69

Ration coupons are typically associated with which of the following government programs?

A) price floors
B) target prices
C) soil bank programs
D) price ceilings
E) minimum wage laws

Question 70

-In Exhibit F-3, a price floor of 80 results in

A) market equilibrium
B) an excess demand of 25
C) an excess demand of 30
D) an excess supply of 25
E) an excess supply of 30

Question 71

-In Exhibit F-3, a price ceiling of 40 results in

A) market equilibrium
B) an excess demand of 40
C) an excess demand of 30
D) an excess supply of 40
E) an excess supply of 30

Question 72

-In Exhibit F-3, a price ceiling of 60 results in

A) market equilibrium
B) an excess demand of 40
C) an excess demand of 50
D) an excess supply of 40
E) an excess supply of 50

Question 73

Governments typically intervene in markets

A) to bring the market price to its equilibrium level
B) to shift the price away from its equilibrium level
C) only to increase the market price
D) only to increase the market output
E) because in some markets, supply and demand do not generate their own equilibrium price

Question 74

If a price ceiling is imposed,

A) the market supply curve shifts to the right
B) the market demand curve shifts to the left
C) an excess demand for the good results
D) the government would be required to buy the excess supply of the good
E) the equilibrium price falls below the price level the government wishes to achieve

Question 75

One likely result of a price ceiling is that

A) an excess supply of the good results
B) the price would be above the equilibrium price
C) the price would be the equilibrium price
D) the good must be rationed
E) the supply curve shifts to the right

Question 76

To ration a good means that

A) some distribution mechanism replaces price to determine who gets what quantity of goods
B) the government owns all the resources used to produce the good
C) the government purchases the goods not sold on the market
D) a price floor has been imposed
E) the supply of the good is greater than the demand

Question 77

If a good is rationed, we can assume that

A) quantity supplied is greater than quantity demanded
B) the price of the good is above its equilibrium level
C) a price floor has been imposed on the market
D) an excess supply of goods exists
E) quantity supplied is less than quantity demanded

Question 78

An excess demand in a market implies that

A) the amount demanded is less than the amount supplied
B) price is greater than the equilibrium price
C) a shortage of the good exists
D) a surplus of the good exists
E) the government must implement a price ceiling

Question 79

One method of addressing an excess demand in a market that is created by a price ceiling is to

A) decrease price
B) ration the good
C) create a price floor
D) decrease supply
E) have the government buy up the surplus

Question 80

A ration coupon is generally used

A) to allocate the excess supply of a good
B) if a price floor is imposed on a market
C) to limit the supply of a good
D) if there is an excess supply
E) to allocate the good under conditions of excess demand