Question 1

Rent controls are typically implemented as a means of helping low-income families afford housing. Is this a good way to help poor families in general? Explain why or why not.

Accepted Answer

The answer of Rent controls are typically implemented as a...

Question 2

Many times after natural disasters such as hurricanes, prices are controlled so that it is illegal to charge any price greater than "pre-hurricane" levels. For consumers who value these goods very highly, is this a good policy? If prices were allowed to increase, what do you think would happen to supply of these highly valued goods? Explain.

Accepted Answer

The answer of Many times after natural disasters such as...

Question 3

Figure: Allocating Goods under Price Ceilings  
 Refer to the figure. Using the information provided in the graph, answer the following questions:
a. If the goods were allocated only to those users who had the highest-value uses, find the total dollar amount of consumer surplus.
b. If the goods are allocated randomly between the high-value uses and the low-value uses, then what is the average value of the good?
c. If goods are allocated randomly, what is the total dollar amount of consumer surplus?

Accepted Answer

The answer of Figure: Allocating Goods under Price Ceilings ...

Question 4

Briefly discuss the U.S. experience with price ceilings during the early 1970s. What effects of the price ceilings became apparent during this period, and how did that period eventually end?

Accepted Answer

The answer of Briefly discuss the U.S. experience with price...

Question 5

The Civil Aeronautics Board regulated airline fares above the free-market rates, which led airlines to compete by offering fancy meals, wide seats, and frequent flights.

Accepted Answer

The Civil Aeronautics Board regulated airline fares above the free-market rates, which led airlines to compete by offering fancy meals, wide seats, and frequent flights.

Question 6

The minimum wage is an example of a price floor in the labor market.

Accepted Answer

The minimum wage sets a minimum price that employers must pay their employees. This price floor can lead to unemployment if it exceeds the equilibrium wage rate, causing some employers to not be able to afford to hire as many workers.

Question 7

When the price of gasoline rose to $4 per gallon in the summer of 2008, many people were outraged at how gas companies were "price gouging" individuals, and called for price controls on gasoline. If the government had agreed to legally cap the price of gasoline, would this have lowered the cost to consumers? Explain.

Accepted Answer

The answer of When the price of gasoline rose to...

Question 8

A price floor makes it illegal for firms to compete for more customers by lowering prices, causing firms to compete by offering customers higher quality.

Accepted Answer

The answer of A price floor makes it illegal for...

Question 9

Although a minimum wage increases unemployment, it doesn't create a deadweight loss.

Accepted Answer

The statement is incorrect. A minimum wage increase can create a deadweight loss if it leads to a surplus of workers willing to work at that wage but a shortage of employers willing to hire them at that wage, resulting in unemployment and lost economic efficiency.

Question 10

Price floors and price ceilings both result in lost gains from trade and decreases in the quality of the product.

Accepted Answer

The answer of Price floors and price ceilings both result...

Question 11

If the equilibrium wage is $10 an hour and the government sets a minimum wage of $8, there will be a shortage of labor.

Accepted Answer

If the equilibrium wage is $10 an hour and the government sets a minimum wage of $8, this is actually above the equilibrium wage. Therefore, there would be no shortage of labor as there may be excess supply of labor at the $8 wage. Instead, there may be reduced demand for labor as employers may not want to pay the higher minimum wage.

Question 12

Figure: Random Allocation under Price Ceilings  
 Refer to the figure. The government enacted a price ceiling of $6 per unit. Using the information provided in the graph, calculate the following:
a. If the goods are allocated randomly between the high-value uses and the low-value uses, what is the total amount of consumer surplus in dollars?
b. What is the lost amount of consumer surplus when goods are allocated randomly, when compared to a situation in which the goods are allocated only to the highest-value uses?

Accepted Answer

The answer of Figure: Random Allocation under Price Ceilings ...

Question 13

Minimum wage laws are an example of price floors.

Accepted Answer

Price floors are government-imposed minimum prices that are higher than the equilibrium price in order to help workers earn a living wage. The minimum wage law sets a floor on the hourly wage that employers must pay their workers, ensuring that they earn at least a certain amount per hour.

Question 14

Assume that a market is defined by two equations: the demand equation is Q_d = 60 - 5P, and the supply equation is Q_s = 5P. Now suppose that a price ceiling is instituted at $3. Use this information to answer the questions below. a. What is the equilibrium price and quantity in this market? b. What is the amount of the shortage at the price ceiling? c. What is the total value of time wasted by consumers standing in line?

Accepted Answer

The answer of Assume that a market is defined by...

Question 15

A market's demand and supply curves are given by: Q_d = 400 - 3P Q_s = 100 + 2P where Q_d is quantity demanded, Q_s quantity supplied, and P is the price. a. Suppose the government enacts a price ceiling of $60. What is the quantity demanded and supplied? Is the market characterized by a shortage? b. Suppose that supply conditions in the market change to Q_s = 80 + 2P. Given the price ceiling of $60, what happens to quantity demanded and quantity supplied? Is the market characterized by a shortage? How much are consumers willing to pay per unit for the quantity transacted?

Accepted Answer

The answer of A market's demand and supply curves are...

Question 16

In the presence of a price floor, some suppliers are willing to take a lower price for their goods, but these trades never take place because they are illegal. This illustrates the problem of misallocation of resources.

Accepted Answer

The answer of In the presence of a price floor,...

Question 17

If a price floor is below the equilibrium price, a shortage will result.

Accepted Answer

If a price floor is set below the equilibrium price, it will have no effect as it will not impact the market. A shortage can only result if the price floor is set above the equilibrium price, which creates a situation where the quantity supplied exceeds the quantity demanded, leading to excess supply or a surplus.

Question 18

A minimum wage mostly creates unemployment among older workers.

Accepted Answer

While some studies suggest that minimum wage may lead to unemployment among young and inexperienced workers, there is no consensus that it mostly affects older workers. Additionally, some studies suggest that minimum wage increases may lead to increased productivity, reduced turnover, and improved well-being among workers.

Question 19

Price floors set above equilibrium encourage quality waste and wasteful lines.

Accepted Answer

The answer of Price floors set above equilibrium encourage quality...

Question 20

Regulation of entry in the airline industry increased costs and reduced innovation.

Accepted Answer

Regulation of entry in the airline industry creates barriers for new competitors to enter the market, reducing competition and incentive for innovation among existing players. This can lead to higher costs for consumers as well.

Quiz 5: Price Ceilings and Floors

Rent controls are typically implemented as a means of helping low-income families afford housing. Is this a good way to help poor families in general? Explain why or why not.

Briefly discuss the U.S. experience with price ceilings during the early 1970s. What effects of the price ceilings became apparent during this period, and how did that period eventually end?

The Civil Aeronautics Board regulated airline fares above the free-market rates, which led airlines to compete by offering fancy meals, wide seats, and frequent flights.

The minimum wage is an example of a price floor in the labor market.

A price floor makes it illegal for firms to compete for more customers by lowering prices, causing firms to compete by offering customers higher quality.

Although a minimum wage increases unemployment, it doesn't create a deadweight loss.

Price floors and price ceilings both result in lost gains from trade and decreases in the quality of the product.

If the equilibrium wage is $10 an hour and the government sets a minimum wage of $8, there will be a shortage of labor.

Minimum wage laws are an example of price floors.

In the presence of a price floor, some suppliers are willing to take a lower price for their goods, but these trades never take place because they are illegal. This illustrates the problem of misallocation of resources.

If a price floor is below the equilibrium price, a shortage will result.

A minimum wage mostly creates unemployment among older workers.

Price floors set above equilibrium encourage quality waste and wasteful lines.

Regulation of entry in the airline industry increased costs and reduced innovation.