Deck 6: Supply, Demand, and Government Policies

Question 1

If a price ceiling is not binding, then

A) there will be a surplus in the market.
B) there will be a shortage in the market.
C) the market will be less efficient than it would be without the price ceiling.
D) there will be no effect on the market price or quantity sold.

Answer 1

D

Question 2

In a competitive market free of government regulation,

A) price adjusts until quantity demanded is greater than quantity supplied.
B) price adjusts until quantity demanded is less than quantity supplied.
C) price adjusts until quantity demanded equals quantity supplied.
D) supply adjusts to meet demand at every price.

Answer 2

C

Question 3

Which of the following is the most likely explanation for the imposition of a price ceiling on the market for milk?

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

Answer 3

B

Question 4

Minimum-wage laws dictate

A) the exact wage that firms must pay workers.
B) a maximum wage that firms may pay workers.
C) a minimum wage that firms may pay workers.
D) both a minimum wage and a maximum wage that firms may pay workers.

Question 5

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling becomes effective,

A) a smaller quantity of the good is bought and sold.
B) a smaller quantity of the good is demanded.
C) a larger quantity of the good is supplied.
D) the price rises above the previous equilibrium.

Question 6

Rent-control laws dictate

A) the exact rent that landlords must charge tenants.
B) a maximum rent that landlords may charge tenants.
C) a minimum rent that landlords may charge tenants.
D) both a minimum rent and a maximum rent that landlords may charge tenants.

Question 7

Policymakers use taxes

A) to raise revenue for public purposes but not to influence market outcomes.
B) both to raise revenue for public purposes and to influence market outcomes.
C) when they realize that price controls alone are insufficient to correct market inequities.
D) only in those markets in which the burden of the tax falls clearly on the sellers.

Question 8

In a free, competitive market, what is the rationing mechanism?

A) seller bias
B) buyer bias
C) government law
D) price

Question 9

If a price ceiling is not binding, then

A) the equilibrium price is above the price ceiling.
B) the equilibrium price is below the price ceiling.
C) it has no legal enforcement mechanism.
D) None of the above is correct because all price ceilings must be binding.

Question 10

Which of the following is not correct?

A) Economists have two roles: scientist and policy adviser.
B) As scientists, economists develop and test theories to explain the world around them.
C) Economic policies rarely have effects that their architects did not intend or anticipate.
D) As policy advisers, economists use their theories to help change the world for the better.

Question 11

Suppose the government has imposed a price ceiling on laptop computers. Which of the following events could transform the price ceiling from one that is not binding into one that is binding?

A) Improvements in production technology reduce the costs of producing laptop computers.
B) The number of firms selling laptop computers decreases.
C) Consumers' income decreases, and laptop computers are a normal good.
D) The number of consumers buying laptop computers decreases.

Question 12

Price controls are usually enacted

A) as a means of raising revenue for public purposes.
B) when policymakers believe that the market price of a good or service is unfair to buyers or sellers.
C) when policymakers tax a good.
D) All of the above are correct.

Question 13

The presence of a price control in a market for a good or service usually is an indication that

A) an insufficient quantity of the good or service was being produced in that market to meet the public's need.
B) the usual forces of supply and demand were not able to establish an equilibrium price in that market.
C) policymakers believed that the price that prevailed in that market in the absence of price controls was unfair to buyers or sellers.
D) policymakers correctly believed that price controls would generate no inequities of their own once imposed.

Question 14

A price ceiling is

A) often imposed on markets in which "cutthroat competition" would prevail without a price ceiling.
B) a legal maximum on the price at which a good can be sold.
C) often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price ceiling.
D) All of the above are correct.

Question 15

A legal maximum on the price at which a good can be sold is called a price

A) floor.
B) subsidy.
C) support.
D) ceiling.

Question 16

Price controls

A) always produce a fair outcome.
B) always produce an efficient outcome.
C) can generate inequities of their own.
D) All of the above are correct.

Question 17

Which of the following is not an example of a public policy?

A) rent-control laws
B) minimum-wage laws
C) taxes
D) equilibrium laws

Question 18

Which of the following is not a function of prices in a market system?

A) Prices have the crucial job of balancing supply and demand.
B) Prices send signals to buyers and sellers to help them make rational economic decisions.
C) Prices coordinate economic activity.
D) Prices ensure an equal distribution of goods and services among consumers.

Question 19

If a nonbinding price ceiling is imposed on a market, then the

A) quantity sold in the market will decrease.
B) quantity sold in the market will stay the same.
C) price in the market will increase.
D) price in the market will decrease.

Question 20

A price ceiling will be binding only if it is set

A) equal to the equilibrium price.
B) above the equilibrium price.
C) below the equilibrium price.
D) either above or below the equilibrium price.

Question 21

Suppose the government wants to encourage Americans to exercise more, so it imposes a binding price ceiling on the market for in-home treadmills. As a result,

A) the demand for treadmills will increase.
B) the supply of treadmills will decrease.
C) a shortage of treadmills will develop.
D) All of the above are correct.

Question 22

A binding price ceiling i) causes a surplus.
Ii) causes a shortage.
Iii) is set at a price above the equilibrium price.
Iv) is set at a price below the equilibrium price.

A) ii) only
B) iv) only
C) i) and iii) only
D) ii) and iv) only

Question 23

If the government removes a binding price ceiling from a market, then the price received by sellers will

A) decrease, and the quantity sold in the market will decrease.
B) decrease, and the quantity sold in the market will increase.
C) increase, and the quantity sold in the market will decrease.
D) increase, and the quantity sold in the market will increase.

Question 24

Suppose the equilibrium price of a physical examination "physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling, the

A) demand curve for physicals shifts to the right.
B) supply curve for physicals shifts to the left.
C) quantity demanded of physicals increases, and the quantity supplied of physicals decreases.
D) number of physicals performed stays the same.

Question 25

If a binding price ceiling is imposed on the baby formula market, then

A) the quantity of baby formula demanded will increase.
B) the quantity of baby formula supplied will decrease.
C) a shortage of baby formula will develop.
D) All of the above are correct.

Question 26

When a binding price ceiling is imposed on a market to benefit buyers,

A) no buyers actually benefit.
B) some buyers benefit, but no buyers are harmed.
C) some buyers benefit, and some buyers are harmed.
D) all buyers benefit.

Question 27

To say that a price ceiling is binding is to say that the price ceiling

A) results in a surplus.
B) is set above the equilibrium price.
C) causes quantity demanded to exceed quantity supplied.
D) All of the above are correct.

Question 28

A price ceiling is binding when it is set

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

Question 29

If the government removes a binding price ceiling from a market, then the price paid by buyers will

A) increase, and the quantity sold in the market will increase.
B) increase, and the quantity sold in the market will decrease.
C) decrease, and the quantity sold in the market will increase.
D) decrease, and the quantity sold in the market will decrease.

Question 30

When a binding price ceiling is imposed on a market,

A) price no longer serves as a rationing device.
B) the quantity supplied at the price ceiling exceeds the quantity that would have been supplied without the price ceiling.
C) all buyers benefit.
D) All of the above are correct.

Question 31

Suppose the equilibrium price of a physical examination "physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling,

A) the quantity of physicals demanded increases.
B) there is shortage of physicals.
C) the quantity of physicals supplied decreases.
D) All of the above are correct.

Question 32

Which of the following would be the least likely result of a binding price ceiling imposed on the market for rental cars?

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

Question 33

If a price ceiling is a binding constraint on a market, then

A) the equilibrium price must be below the price ceiling.
B) the quantity supplied must exceed the quantity demanded.
C) sellers cannot sell all they want to sell at the price ceiling.
D) buyers cannot buy all they want to buy at the price ceiling.

Question 34

Which of the following would be the most likely result of a binding price ceiling imposed on the market for rental cars?

A) frequent rental programs such as "Rent nine times and the tenth rental is free!"
B) enhanced maintenance programs to promote the high quality of the cars
C) free gasoline given to people as an incentive to a rent a car
D) slow replacement of old rental cars with newer ones

Question 35

To say that a price ceiling is nonbinding is to say that the price ceiling

A) results in a surplus.
B) is set above the equilibrium price.
C) causes quantity demanded to exceed quantity supplied.
D) All of the above are correct.

Question 36

The imposition of a binding price ceiling on a market causes

A) quantity demanded to be greater than quantity supplied.
B) quantity demanded to be less than quantity supplied.
C) quantity demanded to be equal to quantity supplied.
D) the price of the good to be greater than its equilibrium price.

Question 37

Suppose the government has imposed a price ceiling on sliced sandwich bread. Which of the following events could transform the price ceiling from one that is binding to one that is not binding?

A) An increase in the price of flour, which is used to make bread.
B) A decrease in the price of lunch meat.
C) A decease in the price of unsliced bread, which people consider as a substitute for sliced bread.
D) An decrease in the price of peanut butter and jelly.

Question 38

A nonbinding price ceiling i) causes a surplus.
Ii) causes a shortage.
Iii) is set at a price above the equilibrium price.
Iv) is set at a price below the equilibrium price.

A) i) only
B) iii) only
C) i) and iii) only
D) ii) and iv) only

Question 39

A shortage results when a

A) nonbinding price ceiling is imposed on a market.
B) nonbinding price ceiling is removed from a market.
C) binding price ceiling is imposed on a market.
D) binding price ceiling is removed from a market.

Question 40

To say that a price ceiling is binding is to say that the price ceiling

A) results in a shortage.
B) is set below the equilibrium price.
C) causes quantity demanded to exceed quantity supplied.
D) All of the above are correct.

Question 41

A legal minimum on the price at which a good can be sold is called a

A) price subsidy.
B) price floor.
C) tax.
D) price ceiling.

Question 42

Figure 6-2
Refer to Figure 6-2. The price ceiling

A) is binding.
B) causes a shortage.
C) causes the quantity demanded to exceed the quantity supplied.
D) All of the above are correct.

Question 43

A price floor is

A) a legal minimum on the price at which a good can be sold.
B) often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor.
C) a source of inefficiency in a market.
D) All of the above are correct.

Question 44

When a binding price ceiling is imposed on a market to benefit buyers,

A) every buyer in the market benefits.
B) every buyer and seller in the market benefits.
C) every buyer who wants to buy the good will be able to do so, but only if he waits in long lines.
D) some buyers will not be able to buy any amount of the good.

Question 45

Figure 6-2
Refer to Figure 6-2. The price ceiling causes quantity

A) supplied to exceed quantity demanded by 45 units.
B) supplied to exceed quantity demanded by 85 units.
C) demanded to exceed quantity supplied by 45 units.
D) demanded to exceed quantity supplied by 85 units.

Question 46

If a price floor is not binding, then

A) the equilibrium price is above the price floor.
B) the equilibrium price is below the price floor.
C) there will be a surplus in the market.
D) there will be a shortage in the market.

Question 47

A binding price floor i) causes a surplus.
Ii) causes a shortage.
Iii) is set at a price above the equilibrium price.
Iv) is set at a price below the equilibrium price.

A) i) only
B) iii) only
C) i) and iii) only
D) ii) and iv) only

Question 48

In response to a shortage caused by the imposition of a binding price ceiling on a market,

A) price will no longer be the mechanism that rations scarce resources.
B) long lines of buyers may develop.
C) sellers could ration the good or service according to their own personal biases.
D) All of the above are correct.

Question 49

Figure 6-1
Panel a) Panel b)

Refer to Figure 6-1. A binding price ceiling is shown in

A) panel a) only.
B) panel b) only.
C) both panel a) and panel b).
D) neither panel a) nor panel b).

Question 50

Figure 6-1
Panel a) Panel b)

Refer to Figure 6-1. The price ceiling shown in panel a)

A) is not binding.
B) creates a surplus.
C) creates a shortage.
D) Both a) and b) are correct.

Question 51

A price floor will be binding only if it is set

A) equal to the equilibrium price.
B) above the equilibrium price.
C) below the equilibrium price.
D) either above or below the equilibrium price.

Question 52

A nonbinding price floor i) causes a surplus.
Ii) causes a shortage.
Iii) is set at a price above the equilibrium price.
Iv) is set at a price below the equilibrium price.

A) iii) only
B) iv) only
C) i) and iii) only
D) ii) and iv) only

Question 53

If a price floor is not binding, then

A) there will be a surplus in the market.
B) there will be a shortage in the market.
C) there will be no effect on the market price or quantity sold.
D) the market will be less efficient than it would be without the price floor.

Question 54

Figure 6-2
Refer to Figure 6-2. The price ceiling

A) causes a shortage of 45 units of the good.
B) makes it necessary for sellers to ration the good.
C) is not binding because it is set below the equilibrium price.
D) causes a shortage of 40 units of the good.

Question 55

After a binding price floor becomes effective, a

A) smaller quantity of the good is bought and sold.
B) a larger quantity of the good is demanded.
C) a smaller quantity of the good is supplied.
D) All of the above are correct.

Question 56

Which of the following is the most likely explanation for the imposition of a price floor on the market for corn?

A) Policymakers have studied the effects of the price floor carefully, and they 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 policy makers into imposing the price floor.
C) Buyers of corn, recognizing that the price floor is good for them, have pressured policymakers into imposing the price floor.
D) Sellers of corn, recognizing that the price floor is good for them, have pressured policymakers into imposing the price floor.

Question 57

If a nonbinding price floor is imposed on a market, then the

A) quantity sold in the market will decrease.
B) quantity sold in the market will stay the same.
C) price in the market will increase.
D) price in the market will decrease.

Question 58

Figure 6-2
Refer to Figure 6-2. The price ceiling

A) causes a shortage of 40 units.
B) is not binding, because it is set above the equilibrium price.
C) causes a shortage of 45 units.
D) causes a shortage of 85 units.

Question 59

Figure 6-1
Panel a) Panel b)

Refer to Figure 6-1. The price ceiling shown in panel b)

A) is not binding.
B) creates a surplus.
C) creates a shortage.
D) Both a) and b) are correct.

Question 60

Figure 6-1
Panel a) Panel b)

Refer to Figure 6-1. In which panels) of the figure would there be a shortage of the good at the price ceiling?

A) panel a) only
B) panel b) only
C) both panel a) and panel b)
D) neither panel a) nor panel b)

Question 61

A surplus results when a

A) nonbinding price floor is imposed on a market.
B) nonbinding price floor is removed from a market.
C) binding price floor is imposed on a market.
D) binding price floor is removed from a market.

Question 62

When a binding price floor is imposed on a market to benefit sellers,

A) no sellers actually benefit.
B) some sellers benefit, but no sellers are harmed.
C) some sellers benefit, and some sellers are harmed.
D) all sellers benefit.

Question 63

When a binding price floor is imposed on a market,

A) price no longer serves as a rationing device.
B) the quantity supplied at the price floor exceeds the quantity that would have been supplied without the price floor.
C) only some sellers benefit.
D) All of the above are correct.

Question 64

Which of the following observations would be consistent with the imposition of a binding price floor on a market? After the price floor becomes effective,

A) a smaller quantity of the good is bought and sold.
B) a larger quantity of the good is demanded.
C) a smaller quantity of the good is supplied.
D) the price falls below the equilibrium price.

Question 65

The imposition of a binding price floor on a market

A) causes quantity demanded to be greater than quantity supplied.
B) causes quantity demanded to be less than quantity supplied.
C) causes quantity demanded to be equal to quantity supplied.
D) causes a decrease in demand.

Question 66

If a price floor is a binding constraint on a market, then

A) the equilibrium price must be above the price floor.
B) the quantity demanded must exceed the quantity supplied.
C) sellers cannot sell all they want to sell at the price floor.
D) buyers cannot buy all they want to buy at the price floor.

Question 67

If the government removes a binding price floor from a market, then the price paid by buyers will

A) increase, and the quantity sold in the market will increase.
B) increase, and the quantity sold in the market will decrease.
C) decrease, and the quantity sold in the market will increase.
D) decrease, and the quantity sold in the market will decrease.

Question 68

A binding price floor will reduce a firm's total revenue

A) always.
B) when demand is elastic.
C) when demand is inelastic.
D) never.

Question 69

When a binding price floor is imposed on a market,

A) price no longer serves as a rationing device.
B) the quantity demanded at the price floor exceeds the quantity that would have been demanded without the price floor.
C) all sellers benefit.
D) All of the above are correct.

Question 70

Suppose the government has imposed a price floor on the market for soybeans. Which of the following events could transform the price floor from one that is not binding into one that is binding?

A) Farmers use improved, draught-resistant seeds, which lowers the cost of growing soybeans.
B) The number of farmers selling soybeans decreases.
C) Consumers' income increases, and soybeans are a normal good.
D) The number of consumers buying soybeans increases.

Question 71

Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor,

A) quantity demanded decreases.
B) quantity supplied increases.
C) there is a surplus.
D) All of the above are correct.

Question 72

A price floor is binding when it is set

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

Question 73

If the government removes a binding price floor from a market, then the price received by sellers will

A) decrease, and the quantity sold in the market will decrease.
B) decrease, and the quantity sold in the market will increase.
C) increase, and the quantity sold in the market will decrease.
D) increase, and the quantity sold in the market will increase.

Question 74

If a binding price floor is imposed on the video game market, then

A) the demand for video games will decrease.
B) the supply of video games will increase.
C) a surplus of video games will develop.
D) All of the above are correct.

Question 75

If a binding price floor is imposed on the market for eBooks, then

A) the demand for eBooks will decrease.
B) the supply of eBooks will increase.
C) a surplus of eBooks will develop.
D) All of the above are correct.

Question 76

If a binding price floor is imposed on the video game market, then

A) the quantity of video games demanded will decrease.
B) the quantity of video games supplied will increase.
C) a surplus of video games will develop.
D) All of the above are correct.

Question 77

When a binding price floor is imposed on a market to benefit sellers,

A) every seller in the market benefits.
B) all buyers and sellers benefit.
C) every seller who wants to sell the good will be able to do so, but only if he appeals to the personal biases of the buyers.
D) some sellers will not be able to sell any amount of the good.

Question 78

Suppose the government has imposed a price floor on cellular phones. Which of the following events could transform the price floor from one that is binding to one that is not binding?

A) Cellular phones become less popular.
B) Traditional land line phones become more expensive.
C) The components used to produce cellular phones become less expensive.
D) Firms expect the price of cellular phones to fall in the future.

Question 79

To say that a price floor is binding is to say that the price floor

A) results in a shortage.
B) is set below the equilibrium price.
C) causes quantity supplied to exceed quantity demanded.
D) All of the above are correct.

Question 80

Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 per tube. As a result of the price floor, the

A) demand curve for toothpaste shifts to the left.
B) supply curve for toothpaste shifts to the right.
C) quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms want to supply increases.
D) quantity supplied of toothpaste stays the same.