Question 1

In cities with rent controls, the actual rents paid can be higher than the legal maximum.One explanation for this is

Accepted Answer

Rent control laws create a shortage of apartments by reducing the incentive for landlords to maintain and improve their properties. As a result, there are often more potential tenants than there are available apartments, which allows landlords to charge higher rents than the legal maximum. This happens because tenants are willing to pay more than the legal maximum to secure a place to live in the city.

Question 2

Suppose a binding price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia.What will be the likely effect on the market for sparkling wine in Vinyardia?

Accepted Answer

A binding price floor sets a minimum price above the equilibrium price. At this higher price, quantity demanded will decrease and quantity supplied will increase, leading to a surplus.

Question 3

In Venezuela, the government has implemented price controls on cornmeal, and the resulting shortage created a black market for the product.When compared to the competitive equilibrium, this situation has resulted in a transfer of ________ to black market sellers.

Accepted Answer

The implementation of price controls has led to a shortage of cornmeal, which means that there is excess demand for the product at the government-mandated price. As a result, some consumers are willing to pay more than the controlled price to obtain the cornmeal they need. This creates an opportunity for black market sellers, who can sell the cornmeal at a higher price than they would be able to in a competitive market. This transfer of surplus from consumers to black market sellers results in a loss of both consumer surplus and producer surplus, which is captured by the black market sellers. Therefore, the correct answer is B, both consumer surplus and producer surplus.

Question 4

Table 4-5
  
Table 4-5 above contains information about the corn market. Answer the following questions based on this table.
-Refer to Table 4-5.An agricultural price floor is a price that the government guarantees farmers will receive for a particular crop.Suppose the federal government sets a price floor for corn at $12 per bushel.
a.What is the amount of shortage or surplus in the corn market as result of the price floor?
b.If the government agrees to purchase any surplus output at $12, how much will it cost the government?
c.If the government buys all of the farmers' output at the floor price, how many bushels of corn will it have to purchase and how much will it cost the government?
d.Suppose the government buys up all of the farmers' output at the floor price and then sells the output to consumers at whatever price it can get.Under this scheme, what is the price at which the government will be able to sell off all of the output it had purchased from farmers? What is the revenue received from the government's sale?
e.In this problem we have considered two government schemes: (1)a price floor is established and the government purchases any excess output and (2)the government buys all the farmers' output at the floor price and resells at whatever price it can get.Which scheme will taxpayers prefer?
f.Consider again the two schemes.Which scheme will the farmers prefer?
g.Consider again the two schemes.Which scheme will corn buyers prefer?

Accepted Answer

The answer of Table 4-5
  
Table 4-5 above contains...

Question 5

If Uber is required to start paying the value-added tax (VAT)in Great Britain, this will have the potential to raise the equilibrium price in this market and, therefore, decrease efficiency.This would have a tendency to

Accepted Answer

If Uber is required to start paying the value-added tax (VAT), it will increase their costs and this cost may ultimately be passed on to consumers in the form of higher prices, which would decrease consumer surplus. Additionally, the decrease in efficiency may result in an increase in Deadweight Loss. Therefore, the best answer is B, as it explains the decrease in consumer surplus and increase in deadweight loss.

Question 6

Economists are reluctant to state that price controls are desirable or undesirable because

Accepted Answer

Economists are trained to provide analysis based on economic theory and data, but when it comes to determining whether a particular policy is good or bad, it is a normative judgment that is beyond their expertise, as it requires considering ethical, political, and social factors. Therefore, economists can provide information on the potential economic consequences of price controls, but it is up to policymakers and society to decide whether the benefits outweigh the costs.

Question 7

Shortage means the same thing as scarcity.

Accepted Answer

Shortage and scarcity are related but not identical; scarcity refers to the limited nature of resources, while a shortage occurs when demand exceeds supply at a specific price.

Question 8

The actual division of the burden of a tax between buyers and sellers in a market is called

Accepted Answer

Tax incidence refers to the actual division of the burden of a tax between buyers and sellers in a market. It is important to understand tax incidence as it helps to analyze the effects of taxes on market outcomes and on the distribution of economic welfare. Tax liability refers to the legal obligation to pay taxes, tax bearer refers to the entity that actually pays the tax, and tax parity refers to a situation where all individuals or entities are subject to the same tax rules and rates.

Question 9

The cities of Francistown and Nalady are five miles apart.Francistown enacts a rent control law that puts a ceiling on rents well below their equilibrium market value.Predict the short-run impact of this law on the competitive equilibrium rent in Nalady, which does not have a rent control law.
a.Illustrate your answer with one demand and supply graph for the apartment market in Francistown and another demand and supply graph for the apartment market in Nalady.
b.Make sure that your graphs clearly show (1)the initial equilibrium before the rent control in both markets and (2)what happens after the imposition of rent control.
c.Clearly show any shifts in the demand or supply curves, and the movement along the curves for each market.
d.Label your graphs fully and provide written explanation for your graphs.

Accepted Answer

The answer of The cities of Francistown and Nalady are...

Question 10

A price ceiling is a legally determined maximum price that sellers may charge.

Accepted Answer

A price ceiling is a legally determined maximum price that sellers may charge, typically set by the government to protect consumers and prevent prices from becoming too high.

Question 11

Black markets only exist in developing nations.

Accepted Answer

Black markets exist in both developing nations and developed nations. They are usually associated with illegal goods or services, such as drugs or human trafficking, and are driven by high demand and lack of regulation.

Question 12

What is the difference between a price ceiling and a price floor? Compared to the competitive equilibrium price, where must price ceilings and price floors be set to have an effect on the market?

Accepted Answer

The answer of What is the difference between a price...

Question 13

What is a black market?

Accepted Answer

The answer of What is a black market?...

Question 14

What is the difference between scarcity and a shortage?

Accepted Answer

The answer of What is the difference between scarcity and...

Question 15

Figure 4-7
 
-Refer to Figure 4-7 which shows the market for vitamins.Suppose the government imposes a price ceiling of Pᵥ.How will the price ceiling affect the quantity supplied, quantity demanded, and quantity exchanged?

Accepted Answer

The answer of Figure 4-7
 
-Refer to Figure 4-7 which...

Question 16

Rent control is an example of a price ceiling.

Accepted Answer

Rent control is a government policy that sets a maximum price that landlords can charge for rent, which is an example of a price ceiling.

Question 17

The minimum wage is an example of a price ceiling.

Accepted Answer

A minimum wage is a price floor, not a price ceiling, as it sets the lowest legal wage that can be paid, rather than capping the maximum price.

Question 18

Which of the following is not a result of binding government price controls?

Accepted Answer

This statement is not always true as the effects of price controls can vary based on the specific market and circumstances. It is possible that price controls may harm both poor consumers and producers, or benefit both.

Question 19

Price ceilings are illegal in the United States.

Accepted Answer

Price ceilings are not illegal in the United States, but they are only used in specific situations and can be difficult to manage effectively.

Question 20

Suppose a binding price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia.What will be the likely effect on the market for sparkling wine in Vinyardia?

Accepted Answer

A binding price floor leads to a situation where the market price of sparkling wine is artificially set higher than the equilibrium price. Consequently, there will be an excess supply of sparkling wine, and some producers will not find buyers at the higher price. This situation leads to a deadweight loss, which is the loss in social welfare due to the inefficient allocation of resources. The surplus increase for the producer could be possible only if the demand remains constant, which is highly unlikely in this case. Therefore, the correct answer is C, deadweight loss will increase.

Quiz 4: Economic Efficiency, Government Price Setting, and Taxes

In cities with rent controls, the actual rents paid can be higher than the legal maximum.One explanation for this is

Suppose a binding price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia.What will be the likely effect on the market for sparkling wine in Vinyardia?

In Venezuela, the government has implemented price controls on cornmeal, and the resulting shortage created a black market for the product.When compared to the competitive equilibrium, this situation has resulted in a transfer of ________ to black market sellers.

If Uber is required to start paying the value-added tax (VAT) in Great Britain, this will have the potential to raise the equilibrium price in this market and, therefore, decrease efficiency.This would have a tendency to

Economists are reluctant to state that price controls are desirable or undesirable because

Shortage means the same thing as scarcity.

The actual division of the burden of a tax between buyers and sellers in a market is called

A price ceiling is a legally determined maximum price that sellers may charge.

Black markets only exist in developing nations.

What is the difference between a price ceiling and a price floor? Compared to the competitive equilibrium price, where must price ceilings and price floors be set to have an effect on the market?

What is a black market?

What is the difference between scarcity and a shortage?

Figure 4-7 -Refer to Figure 4-7 which shows the market for vitamins.Suppose the government imposes a price ceiling of Pᵥ.How will the price ceiling affect the quantity supplied, quantity demanded, and quantity exchanged?

Rent control is an example of a price ceiling.

The minimum wage is an example of a price ceiling.

Which of the following is not a result of binding government price controls?

Price ceilings are illegal in the United States.

Suppose a binding price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia.What will be the likely effect on the market for sparkling wine in Vinyardia?