Deck 6: Supply, demand, and Government Policies

Question 1

Why are policymakers led to control prices

A)They view the market's outcome as inefficient.
B)They view the market's outcome as unfair.
C)All politicians enjoy exercising their power.
D)They are required to do so under the Employment Act of 1946.

Answer 1

They view the market's outcome as unfair.

Question 2

Figure 6-1


Refer to Figure 6-1.In which panel in the figure shown would there be a shortage for the product

A)panel (a)
B)panel (b)
C)panel (c)
D)panel (d)

Answer 2

panel (b)

Question 3

What happens if a binding price ceiling is imposed in a market

A)There will be a surplus in the market.
B)The price will be legally forced toward equilibrium price.
C)There will be a shortage in the market.
D)Market forces will guarantee that the price will be at equilibrium.

Answer 3

There will be a shortage in the market.

Question 4

What are the outcomes of price controls

A)Price controls produce an equitable outcome.
B)Price controls produce an efficient outcome.
C)Price controls are imposed by business firms to promote an equifigure outcome.
D)Price controls lead to shortages or surpluses.

Question 5

Which statement best describes a price floor

A)A price floor is a legal minimum on the price at which a good can be sold.
B)A price floor is a legal maximum on the price at which a good can be sold.
C)A price floor is temporarily set below the market equilibrium.
D)A price floor is temporarily set at the market equilibrium.

Question 6

Why are policymakers led to control prices

A)They view the market's outcome as inefficient.
B)They view the market's outcome as inequitable.
C)Price control policies actually help the average hardworking Canadian.
D)They are required to do so under the Employment Act of 1946.

Question 7

What is the case when a price ceiling is not binding

A)The equilibrium price is above the ceiling.
B)The equilibrium price is below the ceiling.
C)It has no legal enforcement mechanism.
D)People must voluntarily agree to abide by it.

Question 8

What is the role of price controls in the market economy

A)Price controls are used to make markets more efficient.
B)Price controls are a tool used by business firms to fix prices.
C)Price controls are nearly always effective in eliminating shortages.
D)Price controls are used by governments to reallocate resources more equitably.

Question 9

What is a legal maximum price at which a good can be sold

A)a price floor
B)a price stabilization
C)a price support
D)a price ceiling

Question 10

When will a price ceiling be binding

A)only if it is set equal to equilibrium price
B)only if it is set above equilibrium price
C)only if it is set below equilibrium price
D)only if it is set near to the equilibrium price

Question 11

What will a price ceiling that is not binding do

A)It will cause a surplus in the market.
B)It will cause a shortage in the market.
C)It will cause the market to be less efficient.
D)It will have no effect on the market price.

Question 12

What is a legal minimum price at which a good can be sold

A)a price cut
B)a price stabilization
C)a price ceiling
D)a price floor

Question 13

What is a government-imposed maximum price at which a good can be sold

A)a price floor
B)a price ceiling
C)a price support
D)a price equilibrium

Question 14

When are price controls usually used

A)Price controls are usually used when the market is inefficient.
B)Price controls are usually used when policymakers believe that the market price of a good or service is unfair to buyers or sellers.
C)Price controls are usually used when there is monopoly power in the market.
D)Price controls are usually used when there are profits in the market.

Question 15

Which of the following is a result of price controls

A)an equitable outcome
B)an efficient outcome
C)additional inequities
D)revenue for the government

Question 16

Figure 6-2

Refer to Figure 6-2.At which price would there be a binding price ceiling

A)$8.00
B)$10.00
C)$12.00
D)$14.00

Question 17

Which statement best describes a price ceiling

A)A price ceiling is a legal maximum on the price at which a good can be sold.
B)A price ceiling is a legal minimum on the price at which a good can be sold.
C)A price ceiling occurs when the price in the market is temporarily above equilibrium.
D)A price ceiling occurs when the price in the market is subsidized by the government.

Question 18

Why do policymakers choose to enact price controls in a market

A)They believe the market's outcome to be unfair.
B)Enacting price controls will directly increase tax revenues.
C)They are required by law to improve market conditions.
D)They believe that the market system is inefficient and their actions will improve efficiency.

Question 19

Figure 6-1


Refer to Figure 6-1.Which of the above figures represent price control correctly

A)panel (a) and panel (c)
B)panel (b) and panel (d)
C)panel (a) and panel (d)
D)panel (b) and panel (c)

Question 20

What does a binding price ceiling cause

A)a shortage that cannot be eliminated through market adjustment
B)a surplus that cannot be eliminated through market adjustment
C)a shortage that is temporary, since market adjustment will cause price to rise
D)a surplus that is temporary, since market adjustment will cause price to rise

Question 21

When binding price ceilings are imposed in a market,what happens

A)Price no longer serves as a rationing device.
B)The market will be cleared of any shortages or surpluses that existed previously.
C)Buyers and sellers both benefit equally.
D)The market concludes that the government is attempting to improve market efficiency.

Question 22

How would rationing by long lines best be described

A)inefficient, because it wastes buyers' time
B)efficient, because those who are willing to wait the longest get the goods
C)the only way scarce goods can be rationed
D)only necessary if price ceilings are not binding

Question 23

Figure 6-2

Refer to Figure 6-2.If the government imposes a binding price ceiling of $8.00 in this market,what is the result

A)a surplus of 20 units
B)a surplus of 40 units
C)a shortage of 20 units
D)a shortage of 40 units

Question 24

How can water shortages be most efficiently eliminated even in times of drought

A)if the market is allowed to adjust freely
B)if water can be moved from where it is plentiful to where it is needed most
C)if government watering bans are imposed to reduce water usage
D)if the price is low enough for everyone to have all the water they want

Question 25

Figure 6-2

Refer to Figure 6-2.If the government imposes a binding price floor of $14.00 in this market,what is the result

A)a surplus of 30 units
B)a shortage of 30 units
C)a surplus of 40 units
D)a shortage of 40 units

Question 26

What is the NOT a likely to result from the imposition of a price ceiling in the market for rental cars

A)free unlimited mileage given to people as an incentive to rent a car
B)poor engine maintenance in rental cars
C)an accumulation of dirt in the interior of rental cars
D)slow replacement of old rental cars with new ones

Question 27

What is a result of binding price ceilings

A)market efficiency
B)shortages
C)buyer bias
D)surpluses

Question 28

Figure 6-4

Refer to Figure 6-4.Without the price ceiling in this market for gasoline,what will happen to the price when the supply curve shifts from S₁ to S₂

A)It will increase to P₃, but a shortage will still exist.
B)It will increase to P₃ and the market will clear.
C)It will remain at P₁ and a shortage will still exist.
D)It will eventually move to P₂ without government assistance.

Question 29

What will result when a price ceiling is a binding constraint

A)The actual price will be below the price ceiling.
B)The actual price will be above the price ceiling.
C)The equilibrium price will equal the price ceiling.
D)The actual price will equal the price ceiling.

Question 30

A binding price ceiling is imposed on the market for peaches.At the ceiling price,what will be the quantity demanded of peaches

A)greater than the quantity supplied
B)equal to the quantity supplied
C)smaller than the quantity supplied
D)artificially restricted by the price ceiling

Question 31

Figure 6-2

Refer to Figure 6-2.At what price would there be a binding price floor

A)a price of $8.00
B)a price of $10.00
C)any price below $7.00
D)any price above $10.00

Question 32

What will a binding price ceiling make it necessary to do

A)supply more of the product
B)develop a way of rationing the product, because there will be a shortage
C)develop a better marketing plan, because there will be a surplus
D)increase demand for the product

Question 33

What will result from a binding price ceiling in the computer market

A)a surplus of computers
B)a shortage of computers
C)the quantity demanded of computers being equal to the quantity supplied
D)an increase in the demand for computers

Question 34

What technique can most efficiently lessen water shortages caused by droughts

A)allowing price to equate the quantity demanded of water with the quantity supplied of water
B)restricting water usage of consumers
C)creating a website where "water wasters" can be reported
D)imposing tight price controls on water

Question 35

Figure 6-3

Refer to Figure 6-3.At which price would a binding price ceiling exist

A)$5.00
B)$6.00
C)$7.00
D)$8.00

Question 36

If a price ceiling is a binding constraint on the market,what do we know

A)The equilibrium price must be above the price ceiling.
B)Sellers will benefit from this market.
C)The forces of supply and demand must be in equilibrium.
D)There may be a surplus in the market.

Question 37

When binding price ceilings are imposed to benefit buyers,what happens

A)Every buyer in the market benefits because of lower prices.
B)Some buyers will not be able to buy any of the products.
C)Sellers in the market will also benefit from price ceilings.
D)The quantity sellers want to sell will equal the quantity buyers want to buy.

Question 38

What do we know about price ceilings and price floors

A)They are desirable because they make markets more efficient as well as equitable.
B)They cause surpluses and shortages to persist since price cannot adjust to the market equilibrium price.
C)They can be enacted to restore a market to equilibrium.
D)They are imposed because they can make low-income households in the economy better off without causing adverse effects.

Question 39

Figure 6-4

Refer to Figure 6-4.With a price ceiling present in this market,what will happen when the supply curve for gasoline shifts from S₁ to S₂

A)The price will increase to P₃.
B)A surplus will occur at the new market price of P₂.
C)The market price will stay at P₁ due to the price ceiling.
D)A shortage will occur at the price ceiling of P₂.

Question 40

Figure 6-3

Refer to Figure 6-3.If the government imposes a binding price ceiling in this market at a price of $5.00,what is the result

A)a shortage of 10 units
B)a shortage of 20 units
C)a surplus of 10 units
D)a surplus of 20 units

Question 41

One economist has argued that rent control is "the best way to destroy a city,other than bombing." Why would an economist agree with this

A)She fears that low rents will cause low-income people to move into the city, reducing the quality of life for other people.
B)She fears that rent control will benefit landlords at the expense of tenants, increasing inequality in the city.
C)She fears that rent controls will cause a construction boom, which will make the city crowded and more polluted.
D)She fears that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city.

Question 42

Figure 6-5


Refer to Figure 6-5.Which panel best represent a binding rent control in the long run

A)panel (a)
B)panel (b)
C)panel (c)
D)Panel (d)

Question 43

Where does a binding price floor in a market set price,and with what effect

A)above equilibrium price, causing a shortage
B)above equilibrium price, causing a surplus
C)below equilibrium price, causing a surplus
D)below equilibrium price, causing a shortage

Question 44

What do economists generally regard rent control to be

A)an efficient and equitable way to help low-income households
B)not efficient, but the best way to solve a serious social problem
C)a highly inefficient way to help low-income households raise their standard of living
D)an efficient way to allocate housing, but not a good way to help low-income households

Question 45

Under rent control,how does bribery act as a mechanism

A)by bringing the total price of an apartment (including the bribe) closer to the equilibrium price
B)by allocating housing to the individuals in the market most in need
C)by forcing the total price of an apartment (including the bribe) to be less than the market price
D)by allocating housing to the most deserving tenants

Question 46

In the housing market,what effect do rent controls have on quantity supplied and quantity demanded

A)causes both to fall
B)causes quantity supplied to fall and quantity demanded to rise
C)causes quantity supplied to rise and quantity demanded to fall
D)causes both to rise

Question 47

Which principle is illustrated by the long-run effects of rent controls

A)Society faces a short-run tradeoff between unemployment and inflation.
B)The cost of something is what you give up to get it.
C)People respond to incentives.
D)Government can sometimes improve on market outcomes.

Question 48

With a binding price floor,what will the market price be

A)lower than the price floor
B)higher than the price floor
C)equal to the difference between price floor and price ceiling
D)equal to the difference between price floor and the market equilibrium.

Question 49

How is rent control best characterized

A)as a common example of a social problem solved by government regulation
B)as a common example of a price ceiling
C)as the most effective way to provide affordable housing
D)as the most efficient way to allocate housing

Question 50

Under rent control,what can tenants expect

A)lower rent and higher quality housing
B)lower rent and lower quality housing
C)higher rent and higher quality housing
D)higher rent and lower quality housing

Question 51

Which of the following is a result of government-imposed rent controls

A)more new apartments offered for rent
B)more maintenance provided by landlords
C)less bribery
D)lower quality housing

Question 52

Over time,what happens to housing shortages caused by rent control

A)They increase, because the demand and supply curves for housing are more elastic in the long run.
B)They increase, because the demand and supply curves for housing are more inelastic in the long run.
C)They decrease, because the demand and supply curves for housing are more inelastic in the long run.
D)They decrease, because the demand and supply curves for housing are more elastic in the long run.

Question 53

Compared to Canada,what caused the shortage of gasoline in the United States in the 1970s

A)a sharp increase in the demand for gasoline needed for the Vietnam war
B)government regulation in the form of a price ceiling
C)an indifference among U.S.consumers toward conservation
D)the lack of alternative sources of crude oil

Question 54

When is a price floor NOT binding

A)when the price floor is higher than the equilibrium market price
B)when the price floor is lower than the equilibrium market price
C)when people are willing to buy less when the price floor is imposed than they did before
D)when the government sets it

Question 55

What is NOT a mechanism of rationing used by landlords in cities with rent control

A)tenants without children
B)race
C)price
D)bribes

Question 56

Why are apartment owners less responsive to tenants' concerns about housing quality under rent control

A)With shortages and waiting lists, apartment owners have an incentive to maintain and improve their property.
B)Apartment owners know they can never please their tenants.
C)The law no longer requires apartment owners to maintain their buildings.
D)Apartment owners can convert their buildings into condos.

Question 57

When OPEC raised the price of crude oil in the 1970s,what was the result

A)Demand for gasoline increased.
B)Demand for gasoline decreased.
C)Supply of gasoline increased.
D)Supply of gasoline decreased.

Question 58

Figure 6-5


Refer to Figure 6-5.Which panel best represents a binding rent control in the short run

A)panel (a)
B)panel (b)
C)panel (c)
D)Panel (d)

Question 59

When is a price floor binding

A)when it is higher than the equilibrium market price
B)when it is lower than the equilibrium market price
C)when it is equal to the equilibrium market price
D)when it is set by the government

Question 60

Under rent control,landlords cease to be responsive to tenants' concerns about the quality of the housing.Why is this

A)With shortages and waiting lists, landlords have no incentive to maintain and improve their properties.
B)Landlords know they can never please their tenants.
C)The law no longer requires landlords to maintain their buildings.
D)Quality of housing becomes the government's responsibility.

Question 61

Which is the most likely result of imposing a minimum wage above a market's equilibrium wage

A)The quantity supplied of labour will be greater than the quantity demanded of labour, and unemployment will occur.
B)The quantity demanded of labour will be greater than the quantity supplied of labour, and unemployment will occur.
C)The quantity supplied of labour will be greater than the quantity demanded of labour, and a shortage of workers will occur.
D)The quantity demanded of labour will be greater than the quantity supplied of labour, and a shortage of workers will occur.

Question 62

What does a binding price floor cause

A)excess demand
B)a shortage
C)a surplus
D)a drop in the equilibrium price

Question 63

Why was the minimum wage instituted

A)in order to ensure workers a middle-class standard of living
B)in order to ensure workers employment
C)in order to ensure workers a minimally adequate standard of living
D)in order to ensure workers unemployment compensation

Question 64

Do minimum-wage laws in Canada vary by provinces

A)No.All provinces have legislation that establishes the same minimum wage as the federal law.
B)Yes.All provinces have legislation that establishes different minimum-wage rates.
C)Yes.The federal law has set lower minimum-wage rates in all territories.
D)No.The federal law has set higher minimum-wage rates for inexperienced workers across all provinces.

Question 65

Which statement is the best explanation for the imposition of a price floor in the market for corn

A)Policymakers have studied the effects of the price floor carefully and recognize that the price floor is advantageous for society as a whole.
B)Buyers and sellers of corn have agreed that the price floor is good for both of them and have therefore pressured policymakers into enacting the price floor.
C)Buyers of corn, recognizing that the price floor is good for them, have pressured policymakers into enacting the price floor.
D)Sellers of corn, recognizing that the price floor is good for them, have pressured policymakers into enacting the price floor.

Question 66

Upon whom does a minimum wage have its greatest impact

A)older workers
B)male workers
C)female workers
D)teenage workers

Question 67

What do minimum-wage laws dictate

A)the average price employers must pay for labour
B)the highest price employers may pay for labour
C)the lowest price employers may pay for labour
D)the quality of labour that must be supplied

Question 68

Figure 6-7

Refer to Figure 6-7.At which price would a binding price floor exist

A)$2.00
B)$4.00
C)$5.00
D)any price above $6.00

Question 69

What will a minimum wage do

A)It will alter both the quantity demanded and quantity supplied of labour.
B)It will affect only the quantity of labour firms will demand at the higher wage, but does not affect the quantity supplied of labour.
C)It will have no effect on the quantity demanded or quantity supplied of labour since the equilibrium wage will not change.
D)It will cause only temporary unemployment, since the market will adjust and eliminate the surplus of workers.

Question 70

Figure 6-7

Refer to Figure 6-7.If the government imposes a binding price floor of $5.00 in this market,what is the result

A)a surplus of 15 units
B)a surplus of 20 units
C)a surplus of 35 units
D)a shortage of 20 units

Question 71

Figure 6-6


Refer to Figure 6-6.Which of the above figures represent a proper price control for the wheat market

A)panel (a)
B)panel (b)
C)panel (c)
D)panel (d)

Question 72

What do the equilibrium wages of teenagers tend to be,and why

A)low, because teenagers are among the least skilled and least experienced workers
B)high, because teenagers are among the strongest and most energetic workers
C)low, because most teenagers live at home and do not require high wages
D)high, because teenagers tend to join unions

Question 73

Why are workers with high skills and much experience not affected by the minimum wage

A)They belong to unions.
B)They are not legally guaranteed the minimum wage.
C)They are generally self-employed and pay themselves a salary.
D)Their equilibrium wages are well above the minimum wage.

Question 74

What is the minimum wage an example of

A)a price ceiling
B)a price floor
C)a free-market process
D)an efficient labour allocation mechanism

Question 75

In Canada,when minimum wage laws are established,what must employers do

A)pay the going (equilibrium) wage in the market
B)pay a wage equal to or higher than the minimum wage
C)hire a minimum number of employees that is set by the government
D)hire only those workers who will work for the established minimum wage

Question 76

Which parties determine the supply and the demand for labour

A)Workers determine the supply of labour, and firms determine the demand for labour.
B)Workers determine the demand for labour, and firms determine the supply of labour.
C)Workers determine the supply of labour, and government determines the demand for labour.
D)Government determines the supply of labour, and firms determine the demand for labour.

Question 77

What will happen if a newly imposed minimum wage is set above the equilibrium wage in a labour market

A)The equilibrium wage in the market will rise.
B)Every worker who is earning a wage below the minimum will be better off.
C)Some workers will get a raise and some workers will lose their jobs.
D)Workers earning more than the minimum wage will be worse off.

Question 78

What is the most likely result of the imposition of a price floor in the market for rental cars

A)free gasoline given to people as an incentive to rent a car
B)poor engine maintenance in rental cars
C)an accumulation of dirt in the interior of rental cars
D)slow replacement of old rental cars with new ones

Question 79

Figure 6-6


Refer to Figure 6-6.In panel (b),what will happen at the actual price

A)There will be a shortage of wheat.
B)There will be equilibrium in the market.
C)There will be a surplus of wheat.
D)There will be an excess demand for wheat.

Question 80

What results when the minimum wage is above the equilibrium wage

A)The quantity demanded of labour will be greater than the quantity supplied.
B)The quantity demanded of labour will equal to the quantity supplied.
C)The quantity demanded of labour will be less than the quantity supplied.
D)Anyone who wants a job at the minimum wage can find one.