Question 1

Use the following to answer question: 
-(Table: The Market for Soda) Look at the table The Market for Soda. If the government imposes a price floor of $1 per can of soda, there will be:
A) a shortage of two cans.
B) a shortage of three cans.
C) a surplus of three cans.
D) equilibrium in the market for soda.

Accepted Answer

A price floor set above the equilibrium price results in a surplus because the quantity supplied exceeds the quantity demanded at that price.

Question 2

All else equal, if a price floor above the equilibrium is imposed on a market and the government buys the surplus, consumer surplus will _____ and producer surplus will _____.
A) fall; rise
B) fall; fall
C) rise; fall
D) rise; rise

Accepted Answer

A price floor set above the equilibrium price will lead to a surplus of goods. The government buying this surplus will not change the fact that consumers are paying higher prices than they would in an equilibrium situation, thus reducing consumer surplus. However, producers benefit from the higher price and guaranteed sales to the government, increasing producer surplus.

Question 3

West African cotton farmers are very upset about the subsidies the U.S. government pays to American cotton farmers. One reason for this could be that subsidized cotton from the United States:
A) leads to cotton surpluses in the United States and lower prices for West African farmers on world markets.
B) raises the world price of cotton.
C) has led to a global shortage of cotton.
D) has led to an increase in the demand for West African cotton.

Accepted Answer

Subsidized cotton from the United States leads to surpluses, which lowers prices for West African farmers on the world market. This makes it more difficult for West African cotton farmers to compete and make a living.

Question 4

Use the following to answer question: Figure: Supply and Demand -(Figure: Supply and Demand) Look at the figure Supply and Demand. A binding price floor is represented by: A) P₁. B) P₂. C) P₃. D) point C.

Accepted Answer

The answer of Use the following to answer question:
Figure: Supply...

Question 5

Suppose the government of the oil-rich country Saudi Arabia sets gasoline prices at $0.25 per gallon when the market price is $1.50. The Saudi government's actions will:
A) improve efficiency, since the low prices will force producers to find cheaper production methods.
B) result in gasoline surpluses even in an oil-rich country.
C) cause gasoline shortages even in an oil-rich country.
D) improve equality between rich and poor, since the poor can now afford gasoline.

Accepted Answer

Setting gasoline prices below the market price creates a price ceiling, leading to increased demand and potential shortages, as the supply may not meet the artificially high demand at the lower price.

Question 6

Use the following to answer question: 
-(Table: Market for Butter) Look at the figure Market for Butter. If the government imposes a price floor of $0.90 per pound of butter, the quantity of butter actually purchased will be _____ million pounds.
A) 10.5
B) 9.0
C) 1.5
D) 10.0

Accepted Answer

The answer of Use the following to answer question: 
-(Table:...

Question 7

Rent controls in New York City cause all of the following EXCEPT:
A) inefficiently low-quality apartments.
B) wasted resources resulting from the opportunity cost of time associated with trying to find an apartment.
C) black markets.
D) an increase in the quantity supplied of rent-controlled apartments.

Accepted Answer

Rent controls typically lead to a decrease in the quantity supplied of rent-controlled apartments, not an increase, as landlords may not find it profitable to rent out at controlled prices.

Question 8

A binding rent-control price ceiling results in all of the following EXCEPT:
A) inefficiently low quantity of the good exchanged.
B) wasted resources of consumers caused by time spent searching for the good.
C) inefficient allocation of the good to consumers.
D) inefficiently high quality of the good being sold.

Accepted Answer

A binding rent-control price ceiling typically leads to a lower quality of goods being sold, not higher, as landlords have less incentive to maintain or improve properties when they cannot charge market rates.

Question 9

Suppose the government sets a price floor of $2.85 per bushel on corn when the current price is $2.55. This price floor will:
A) cause a surplus of corn.
B) cause a shortage of corn.
C) have no effect on the price of corn.
D) increase the supply of corn.

Accepted Answer

A price floor set above the current market price will lead to a surplus because the minimum price is higher than what consumers are willing to pay, resulting in excess supply.

Question 10

Price controls encourage black markets because:
A) they eliminate opportunity costs.
B) individuals can profit by illegal exchanges.
C) they create too much efficiency.
D) they create too much equity.

Accepted Answer

Price controls set a maximum or minimum price that can be charged for a good or service. When the price control is set below the market equilibrium, suppliers will reduce their supply, and consumers will increase their demand. This creates a shortage of the good or service, leading to long lines, rationing, and waiting lists. Suppliers, seeing an opportunity to profit by charging a higher price, will sell the good or service on the black market. Therefore, price controls encourage black markets.

Question 11

Which is NOT an inefficiency caused by binding price ceilings?
A) inefficient allocation to consumers
B) wasted resources
C) illegal activity
D) inefficient allocation of sales among sellers

Accepted Answer

Binding price ceilings typically cause inefficiencies related to allocation to consumers, wasted resources, and illegal activity, but not inefficient allocation of sales among sellers, which is more related to price floors.

Question 12

In a(n) _____ market goods or services are bought and sold illegally.
A) black
B) uncontrolled
C) unregulated
D) unproductive

Accepted Answer

A black market is a market that operates outside the legal system, where goods and services are bought and sold illegally. The term "black" refers to the fact that transactions in these markets typically go unreported and therefore generate no tax revenue for the government. Examples of black markets include the trade in stolen goods, illegal drugs, and counterfeit products.

Question 13

Governments continue to impose price controls. Which of the following is NOT a valid reason for this?
A) Some people do benefit from such price controls.
B) People fear that prices will change dramatically if the price controls are removed.
C) It is politically expedient to enact regulations that benefit influential voting groups.
D) Price controls are always effective.

Accepted Answer

Price controls are not always effective; they can lead to shortages, surpluses, and other market distortions.

Question 14

Which of the following is an example of a black market transaction?
A) a tenant in a rent-controlled apartment subletting at a higher rent
B) the purchase of an inferior radio at a department store
C) waiting in line during the gasoline shortages of the 1970s
D) the oil market

Accepted Answer

A black market transaction involves the illegal buying or selling of goods or services. Subletting a rent-controlled apartment at a higher rent is illegal and thus an example of a black market transaction.

Question 15

A price ceiling is likely to result in a persistent _____, a transfer of surplus from _____, and _____ deadweight loss.
A) surplus; producers to consumers; some
B) shortage; producers to consumers; some
C) shortage; consumers to producers; no
D) surplus; consumers to producers; some

Accepted Answer

A price ceiling set below the equilibrium price causes a shortage because the quantity demanded exceeds the quantity supplied. It transfers surplus from producers to consumers as consumers pay a lower price, and it results in some deadweight loss due to the inefficient allocation of resources.

Question 16

Use the following to answer questions:
Figure: The Market for Butter 
-(Figure: The Market for Butter) Look at the figure The Market for Butter. If a government price floor at $1.30 is imposed on this market, an inefficiency will result in the form of a _____ of _____ million pounds of butter.
A) surplus; 4.5
B) surplus; 6.0
C) shortage; 6.0
D) shortage; 4.5

Accepted Answer

The answer of Use the following to answer questions:
Figure: The...

Question 17

One of the ways rent control is inefficient is that it leads to:
A) higher-quality apartments.
B) high opportunity costs associated with wasted time searching for apartments.
C) markets that maximize total surplus.
D) the construction of more apartments.

Accepted Answer

Rent control creates a situation where landlords have no incentives to maintain or improve the quality of their apartments since they cannot increase the rent, leading to substandard or poorly maintained apartments. This leads to high opportunity costs for tenants who have to spend a significant amount of time searching for an apartment in good condition, and often settling for low-quality ones due to the shortage of available housing. Rent control, therefore, reduces the efficiency of the housing market.

Question 18

Use the following to answer questions:
Figure: The Market for Butter 
-(Figure: The Market for Butter) Look at the figure The Market for Butter. If a government price floor at $1.20 is imposed on this market, an inefficiency will result in the form of a _____ of _____ million pounds of butter.
A) surplus; 4.5
B) shortage; 4.5
C) surplus; 1.5
D) shortage; 1.5

Accepted Answer

A price floor set above the equilibrium price creates a surplus because the quantity supplied exceeds the quantity demanded. At $1.20, there is a surplus of 4.5 million pounds of butter.

Question 19

The United States and the European Union impose price floors on many agricultural products. These price floors lead to unwanted surpluses. To deal with a surplus:
A) the U.S. government typically pays farmers to produce as much as possible.
B) the U.S. government in some cases has destroyed the surplus production.
C) the European Union pays farm exporters to sell products for a profit overseas.
D) the U.S. government holds auctions to sell the surplus to the highest bidder.

Accepted Answer

Paying farmers to produce more or exporting the surplus may lead to even more surpluses in the future, while holding auctions may decrease the price of the agricultural products. Destroying the surplus production is the most effective way to prevent the surplus from entering the market and driving down prices for farmers.

Question 20

Economists in general agree that rent controls are:
A) an efficient and equitable way to help low-income families.
B) an inefficient but sometimes effective way to help low-income families.
C) an efficient method of dealing with the shortages caused by price ceilings.
D) the only way to solve the problem of poverty.

Accepted Answer

Economists generally agree that while rent controls may provide some short-term relief for low-income families, they ultimately create inefficiencies in the housing market by reducing the supply of rental housing and discouraging landlords from maintaining or improving their properties. This can lead to reduced quality of housing in the long run, as well as increased competition and discrimination for rental units that are available. However, in some circumstances, such as in times of high inflation or in areas with housing shortages, rent controls may be necessary to prevent excessive rent increases and maintain affordable housing options for low-income families.

Quiz 5: Price Controls and Quotas: Meddling With Markets

Use the following to answer question: -(Table: The Market for Soda) Look at the table The Market for Soda. If the government imposes a price floor of $1 per can of soda, there will be:

All else equal, if a price floor above the equilibrium is imposed on a market and the government buys the surplus, consumer surplus will _ and producer surplus will _.

West African cotton farmers are very upset about the subsidies the U.S. government pays to American cotton farmers. One reason for this could be that subsidized cotton from the United States:

Use the following to answer question: Figure: Supply and Demand -(Figure: Supply and Demand) Look at the figure Supply and Demand. A binding price floor is represented by:

Suppose the government of the oil-rich country Saudi Arabia sets gasoline prices at $0.25 per gallon when the market price is $1.50. The Saudi government's actions will:

Use the following to answer question: -(Table: Market for Butter) Look at the figure Market for Butter. If the government imposes a price floor of $0.90 per pound of butter, the quantity of butter actually purchased will be _____ million pounds.

Rent controls in New York City cause all of the following EXCEPT:

A binding rent-control price ceiling results in all of the following EXCEPT:

Suppose the government sets a price floor of $2.85 per bushel on corn when the current price is $2.55. This price floor will:

Price controls encourage black markets because:

Which is NOT an inefficiency caused by binding price ceilings?

In a(n) _____ market goods or services are bought and sold illegally.

Governments continue to impose price controls. Which of the following is NOT a valid reason for this?

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

A price ceiling is likely to result in a persistent ___, a transfer of surplus from _, and ___ deadweight loss.

Use the following to answer questions: Figure: The Market for Butter -(Figure: The Market for Butter) Look at the figure The Market for Butter. If a government price floor at $1.30 is imposed on this market, an inefficiency will result in the form of a _ of _ million pounds of butter.

One of the ways rent control is inefficient is that it leads to:

Use the following to answer questions: Figure: The Market for Butter -(Figure: The Market for Butter) Look at the figure The Market for Butter. If a government price floor at $1.20 is imposed on this market, an inefficiency will result in the form of a _ of _ million pounds of butter.

The United States and the European Union impose price floors on many agricultural products. These price floors lead to unwanted surpluses. To deal with a surplus:

Economists in general agree that rent controls are: