Question 1

Price controls often help those in need.

Accepted Answer

Price controls can lead to shortages, reduced quality, and black markets, which may ultimately harm rather than help those in need by making essential goods and services less accessible.

Question 2

Economists suggest that price controls should not be enacted because they believe that the market price of a good or service is efficient.

Accepted Answer

Economists believe that market prices are efficient because they are determined by supply and demand. Introducing price controls can disrupt the balance of supply and demand, leading to shortages or surpluses of the goods or services in question.

Question 3

If a price ceiling is non-binding, it will have no effect on the market.

Accepted Answer

A non-binding price ceiling is set above the equilibrium price and therefore does not affect the market. In this situation, the market price remains at the equilibrium price and the price ceiling is irrelevant.

Question 4

A binding minimum wage in a competitive labour market creates unemployment.

Accepted Answer

In a competitive labour market, employers will hire workers based on the value of their productivity. If the minimum wage is set above the value of some workers' productivity, they will become too expensive to hire and employers will reduce their demand for labour. This can result in unemployment among those workers who are unable to find employment at the higher wage.

Question 5

Suppose the price floor is set below the equilibrium price. This will lead to the quantity supplied exceeding the quantity demanded.

Accepted Answer

If the price floor is set below the equilibrium price, it will have no effect on the market because it is not binding. In other words, the market will still clear at the equilibrium price and quantity since the price floor is lower than what the market would naturally produce. Therefore, there will be no excess supply or demand.

Question 6

A binding price floor causes a surplus.

Accepted Answer

A binding price floor, which sets a minimum price above the equilibrium price, creates a situation where quantity supplied exceeds quantity demanded, resulting in a surplus.

Question 7

A binding price ceiling allows consumers to buy all the goods they demand at a lower price.

Accepted Answer

A binding price ceiling sets the maximum price that sellers can charge, which may be below the market equilibrium price. This creates excess demand or a shortage of goods, as consumers want to buy more than what is available at the lower price. As a result, some consumers may be unable to purchase the goods they want.

Question 8

If the government sets the minimum price a good can be traded at, this is defined as a price floor.

Accepted Answer

A price floor is a government-imposed minimum price that is set above the equilibrium price of a good.

Question 9

A price floor is a legal minimum on the price of a good or service.

Accepted Answer

A price floor is a government or legal intervention that sets a minimum price for a particular good or service. It is intended to prevent the price from falling below a certain level and to ensure that producers receive a fair price for their products.

Question 10

Suppose that the equilibrium wage rate in an industry is $10 per hour. The government then sets a minimum wage of $12 per hour. The result will be a surplus of labour supply.

Accepted Answer

When the minimum wage is set above the equilibrium wage rate, it creates a surplus of labor supply because more people are willing to work at the higher wage rate, but fewer employers are willing to hire at the higher cost. This leads to unemployment or excess supply of labor.

Question 11

Opponents of the minimum wage note that a high minimum wage creates unemployment, causes teenagers to drop out of school and prevents some unskilled workers from getting the on-the-job training that they need.

Accepted Answer

Opponents argue that a higher minimum wage increases the cost of labor for employers, leading them to hire fewer workers or automate jobs. Additionally, they argue that a higher minimum wage may make it more appealing for teenagers to drop out of school and work full-time, rather than continuing their education. Finally, opponents argue that some employers may be less likely to hire unskilled workers who require on-the-job training, as the cost of training them is higher with a higher minimum wage.

Question 12

A binding price floor in a competitive market will result in persistent shortages of a product.

Accepted Answer

A binding price floor, set above the equilibrium price, causes a surplus, not a shortage, because it leads to more supply being available in the market than the quantity demanded at that price.

Question 13

Price controls are an effective way of allocating resources in an economy. For this reason there is widespread support for price controls among economists.

Accepted Answer

Price controls are actually controversial among economists. While they may be effective in some situations, such as preventing price gouging during natural disasters, they can also lead to unintended consequences such as shortages and reduced quality of goods and services. Many economists argue that market forces should be allowed to determine prices in most cases.

Question 14

The consequences of economic policies are often predicted or intended by their advocates.

Accepted Answer

Economic policies can have unintended consequences due to the complexity of economic systems and the difficulty in predicting how various factors will interact.

Question 15

Taxes are employed by policy makers for two reasons. The first is to raise revenue. The second is to adjust market outcomes.

Accepted Answer

This is correct. Taxes are commonly used to generate revenue for governments, but they can also be used to influence behavior in the market and achieve certain policy objectives, such as discouraging the consumption of harmful products like cigarettes or promoting the use of clean energy.

Question 16

Suppose a price ceiling is imposed on rice but this is above the equilibrium price. This will result in the quantity supplied of rice exceeding the quantity demanded.

Accepted Answer

If the price ceiling is above the equilibrium price, it will have no effect on the market as the equilibrium price will still prevail. Therefore, the quantity supplied will equal the quantity demanded, and there will be no excess supply or shortage of rice.

Question 17

Suppose a price ceiling is placed on rice. The price ceiling is set above the equilibrium price. This will result in the quantity demanded of rice exceeding the quantity supplied.

Accepted Answer

If the price ceiling is set above the equilibrium price, it will not have any effect on the market as the suppliers will continue to supply the same quantity while the buyers will continue to demand the same quantity. This means that the quantity supplied will still equal the quantity demanded, and there will be no shortage or excess of rice in the market.

Question 18

Long gas lines after OPEC raised the price of crude oil in world markets were caused by the higher prices of oil and gas.

Accepted Answer

The answer of Long gas lines after OPEC raised the...

Question 19

Common rationing mechanisms under price ceilings include waiting in long lines and biases of the sellers.

Accepted Answer

When a price ceiling is enforced, the demand for the good is likely to exceed the supply, resulting in waiting lines as a method of rationing. Sellers may also have biases towards certain customers or groups, further exacerbating equity issues.

Question 20

The minimum wage creates the most benefits for teenage workers as their wages are typically much lower than adult workers.

Accepted Answer

While minimum wage increases can benefit teenage workers by raising their pay, the benefits are not most pronounced for them alone. Minimum wage policies aim to reduce poverty and increase earnings among low-wage workers of all ages, not just teenagers. Moreover, some argue that higher minimum wages can lead to reduced employment opportunities for teenagers as employers may prefer more experienced workers when faced with higher wage costs.

Quiz 6: Supply, Demand and Government Policies