Question 1

Which of the following is a consequence of rent controls established to keep housing affordable for the poor?

Accepted Answer

All of these consequences are potential outcomes of rent controls established to keep housing affordable for the poor. As landlords find it unproﬁtable to rent at restricted prices, they may be less likely to invest in maintaining or improving the quality of their rental housing. Additionally, if they are unable to make a sufficient profit from their properties, they may choose to demolish them or convert them to other uses. This can lead to a decrease in the availability of rental housing overall.

Question 2

(Consider This) Surge prices

Accepted Answer

Surge prices reflect greater anticipated demand and elicit greater quantity supplied of drivers. This is because increased prices provide incentives for more drivers to be on the road, resulting in an increase in supply. However, surge pricing may also result in some consumers being priced out of the market, creating a temporary shortage of rides during peak demand times.

Question 3

A price ﬂoor means that

Accepted Answer

A price floor means that the government is imposing a minimum legal price that is typically above the equilibrium price. This is done to protect the producers from receiving very low prices in the market.

Question 4

An effective price ceiling will

Accepted Answer

An effective price ceiling is a government-imposed limit on how high a price can be charged for a particular good or service. If the price ceiling is set below the market equilibrium price, it will result in a product shortage because the quantity demanded exceeds the quantity supplied at that price. Therefore, choice C is the correct answer. The other choices are incorrect as they do not reflect the consequences of an effective price ceiling.

Question 5

Black markets are associated with

Accepted Answer

Black markets are associated with ceiling prices or price controls, which lead to product shortages, because the quantity demanded exceeds the quantity supplied at the artificially low price. Black markets arise when buyers and sellers are willing to trade at prices above the legal ceiling, leading to an illegal market where the product may be sold at a higher price.

Question 6

An effective price ﬂoor will

Accepted Answer

An effective price floor, set above the equilibrium price, leads to a surplus because the higher price encourages producers to supply more of the product than consumers are willing to buy at that price.

Question 7

If a legal ceiling price is set above the equilibrium price,

Accepted Answer

When a legal ceiling price is set above the equilibrium price, it does not affect the market because the market can naturally settle at the equilibrium price, which is lower than the ceiling. This means transactions can occur without any interference from the ceiling price, leaving both the equilibrium price and quantity unchanged.

Question 8

Which of the following statements is true about price ceilings?

Accepted Answer

Price ceilings set a maximum price for a good or service, which can lead to shortages if the demand is higher than the supply at that price. To eliminate the excess demand, a non-price rationing system must be put in place, such as first-come, first-served or random allocation. Ration coupons are one method, but not the only one. Services can also be affected by price ceilings, not just goods, and price ceilings can sometimes lead to both shortages and surpluses, depending on the specific circumstances. Therefore, only statement B is accurate.

Question 9

A price ceiling means that

Accepted Answer

A price ceiling is a legal maximum price set by the government that is below the equilibrium price. This is done to protect consumers from high prices and ensure affordability, but it can result in shortages or long waiting times if demand exceeds supply.

Question 10

(Consider This) A primary advantage of Uber to government-regulated taxis is that

Accepted Answer

Uber's dynamic pricing model allows fares to adjust based on demand and supply in real-time. This reduces the inefficiencies caused by regulated taxi fares, which can create long wait times for customers during peak periods or lead to empty cabs cruising around during slow periods. Additionally, by avoiding regulatory burdens, Uber is able to keep their cost structure leaner and pass those savings onto riders. This can result in overall lower fares for Uber riders when compared to government-regulated taxis.

Question 11

(Last Word) In examining the relationship between student loans and college tuition, researchers found that

Accepted Answer

The answer of (Last Word) In examining the relationship between...

Question 12

Price ﬂoors and ceiling prices both

Accepted Answer

Price floors and ceiling prices interfere with the natural market mechanism of establishing equilibrium through supply and demand, leading to inefficiencies such as shortages or surpluses, rather than shifting the supply and demand curves to a new equilibrium.

Question 13

(Consider This) Suppose that salsa manufacturers sell 2 million bottles at $3.50 in one year and 3 million bottles at $3 in the next year. Based on this information, we can conclude that the

Accepted Answer

The answer of (Consider This) Suppose that salsa manufacturers sell...

Question 14

Refer to the diagram. Rent controls are best illustrated by

Accepted Answer

The answer of  Refer to the diagram. Rent controls...

Question 15

(Consider This) Uber's dynamic pricing

Accepted Answer

Uber's dynamic pricing adjusts fares based on supply and demand conditions, which helps to keep the market in equilibrium. This system is meant to balance out the number of drivers available with the number of riders, rather than having too many drivers when demand is low or not enough drivers when demand is high. While it may result in higher fares during peak times, the system aims to provide a fair compensation for drivers as well as a reliable service for riders.

Question 16

Refer to the diagram. A government price support program to aid farmers is best illustrated by

Accepted Answer

Price support programs aim to keep prices above the equilibrium level (price B in this diagram), which is achieved by the government buying surplus production to reduce supply and increase price. This results in a new price level (price C) that is higher than the market-clearing price but lower than the cost of production for farmers (price A). Therefore, the correct choice is B, price C, which represents the artificially supported price level resulting from the price support program.

Question 17

An effective price ﬂoor on wheat will

Accepted Answer

An effective price floor on wheat sets a minimum price that buyers must pay for wheat. This would likely result in a surplus of wheat because the higher price would incentivize farmers to produce more wheat than consumers demand, leading to excess supply. This excess supply may lead to storage costs, lower prices in international markets, or even government subsidies to reduce the surplus.

Question 18

If an effective ceiling price is placed on hamburgers, then

Accepted Answer

An effective ceiling price on hamburgers, set below the market-clearing level, leads to a higher quantity demanded than supplied, potentially resulting in a black market as consumers and sellers seek to circumvent the price controls. This situation also means the price charged is below the equilibrium price where supply equals demand.

Question 19

(Consider This) Suppose that coffee growers sell 200 million pounds of coffee beans at $2 per pound in 2015 and 240 million pounds for $3 per pound in 2016. Based on this information, we can
Conclude that the

Accepted Answer

The increase in both the price and quantity of coffee beans sold from 2015 to 2016 suggests that the demand for coffee beans has increased, as higher demand typically leads to higher prices and quantities sold.

Question 20

(Consider This) Dynamic pricing refers to

Accepted Answer

Dynamic pricing refers to the ability to adjust prices in real-time based on changes in supply and demand conditions. This is often used in industries such as airlines, hotels, and ride-sharing services to optimize revenue and ensure pricing remains competitive.

Quiz 3: Demand, Supply, and Market Equilibrium