Question 1

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 ensure that sellers receive a certain price for their goods and to prevent prices from dropping too low, but it can also create surpluses and distort the market.

Question 2

(Advanced analysis)Answer the question on the basis of the following information.The demand for commodity X is represented by the equation P = 100 - 2Q and supply by the equation P = 10 + 4Q. Refer to the given information.If demand changed from P = 100 - 2Q to P = 130 - Q,the new equilibrium quantity is:

Accepted Answer

To find the new equilibrium quantity, we need to set the new demand equation equal to the supply equation:

130 - Q = 10 + 4Q

Solving for Q, we get:

5Q = 120

Q = 24

So the new equilibrium quantity is 24. Therefore, the answer is C.

Question 3

(Consider This)Ticket scalping:

Accepted Answer

Ticket scalping creates economic gains for both buyers and sellers. Sellers benefit by selling tickets at a higher price than the face value, while buyers benefit by obtaining tickets to events they value highly enough to pay the premium price, indicating they value the ticket more than the money spent.

Question 4

(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 2...

Question 5

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 6

If an effective ceiling price is placed on hamburgers,then:

Accepted Answer

An effective ceiling price set below the market equilibrium price for hamburgers would lead to a shortage, where the quantity demanded exceeds the quantity supplied. This could result in the development of a black market as suppliers and consumers seek to circumvent the price controls. Additionally, to manage the shortage, consumers might call for government intervention to ration hamburgers, ensuring some level of equitable distribution.

Question 7

Price floors and ceiling prices:

Accepted Answer

Price floors and ceiling prices interfere with the rationing function of prices by preventing the market from reaching its natural equilibrium. A price floor sets a minimum price which is above the equilibrium price, causing sellers to produce more than buyers want to buy, resulting in a surplus. A ceiling price sets a maximum price below the equilibrium price, causing buyers to demand more than sellers want to sell, resulting in a shortage. In both cases, the price mechanism fails to allocate resources efficiently, resulting in market distortion.

Question 8

A price ceiling means that:

Accepted Answer

A price ceiling is a maximum price that the government sets on a particular product or service, which is typically below the equilibrium price. The purpose of a price ceiling is to make the product or service more affordable for consumers, but it can create shortages of the product because suppliers will be less inclined to produce it at a lower price.

Question 9

(Advanced analysis)Answer the question on the basis of the following information.The demand for commodity X is represented by the equation P = 100 - 2Q and supply by the equation P = 10 + 4Q. Refer to the given information.The equilibrium price is:

Accepted Answer

To find the equilibrium price, we need to set the demand and supply equations equal to each other and solve for P.
100 - 2Q = 10 + 4Q 
90 = 6Q 
Q = 15 
Substitute Q = 15 into either the demand or supply equation to find P:
P = 100 - 2(15) = $70 (or P = 10 + 4(15) = $70)
Therefore, the equilibrium price is $70, which corresponds to answer choice B.

Question 10

(Consider This)Ticket scalping implies that:

Accepted Answer

Ticket scalping typically occurs when the original prices set by event sponsors are below the market equilibrium, leading to a higher demand than supply. Scalpers buy these tickets and sell them at a higher price, closer to the equilibrium price, where the quantity demanded equals the quantity supplied.

Question 11

Which of the following statements is true about price ceilings?

Accepted Answer

Price ceilings, when set below the market equilibrium price, can lead to shortages as the quantity demanded exceeds the quantity supplied at that price. This necessitates rationing by some means other than price, such as waiting lines, lotteries, or favoritism, because the price mechanism is not allowed to function to clear the market.

Question 12

(Consider This)Ticket scalping refers to:

Accepted Answer

Ticket scalping refers to the practice of reselling a ticket at a price above its original purchase price. This is typically done for popular events where demand exceeds supply, and scalpers can take advantage of people’s willingness to pay more to attend the event. Scalping is generally frowned upon, as it can lead to inflated prices and make it harder for people to afford tickets to events they want to attend. However, some argue that it serves a useful function by helping to distribute tickets to those who value them the most, rather than simply being sold at face value to whomever happens to grab them first.

Question 13

An effective price floor on wheat will:

Accepted Answer

An effective price floor on wheat will lead to an increase in price and decrease in demand. This will result in a surplus of wheat as producers will be incentivized to supply more wheat than consumers are willing to buy at the higher price.

Question 14

(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 quantity demanded and price indicates an increase in demand for coffee beans. The law of supply and demand states that an increase in demand will lead to an increase in both quantity and price, and this scenario fits that pattern. There is no evidence to suggest that the law of supply or demand has been violated, and it's impossible to determine whether the supply of coffee beans has increased without additional information.

Question 15

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

Accepted Answer

All of these consequences have been observed as a result of rent controls. When landlords are not able to earn a fair return on their investments, they may choose to convert rental units into other more profitable forms of real estate, which reduces the overall supply of rental housing. Additionally, landlords may lack the financial incentive to keep their properties in good condition, resulting in deterioration over time. Finally, rent controls may discourage new construction, which exacerbates existing housing shortages.

Question 16

(Consider This)Ticket scalping is likely to:

Accepted Answer

Ticket scalping often results in tickets being sold to those willing to pay more, typically indicating a higher level of interest or desire to attend the event, thus potentially leading to a more interested audience.

Question 17

An effective ceiling price will:

Accepted Answer

A ceiling price is a maximum price set by the government or another authority above which a particular good or service cannot be sold, and it is usually intended to keep prices low for consumers. However, if the ceiling price is set at a level below the equilibrium price, it will cause a shortage because suppliers will not be willing to produce and sell as much of the good/service at the lower price. Therefore, option C is the correct answer as it correctly identifies the outcome of an effective ceiling price, which is a product shortage.

Question 18

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 interfere with the market's natural dynamics. The market can still operate at the equilibrium price and quantity since the ceiling does not restrict or alter market transactions below it.

Question 19

(Advanced analysis)Answer the question on the basis of the following information.The demand for commodity X is represented by the equation P = 100 - 2Q and supply by the equation P = 10 + 4Q. Refer to the given information.If demand changed from P = 100 - 2Q to P = 130 - Q,the new equilibrium price is:

Accepted Answer

To find the new equilibrium price after the demand changes to P = 130 - Q, we set the new demand equation equal to the supply equation: 130 - Q = 10 + 4Q. Solving for Q gives Q = 24. Substituting Q = 24 back into either the new demand equation or the supply equation to find P, we get P = 106.

Question 20

Black markets are associated with:

Accepted Answer

Black markets typically arise from price controls such as ceiling prices, which create shortages of the product in question as the legally available supply is insufficient to meet demand.

Quiz 3: Demand, Supply, and Market Equilibrium

A price floor means that:

(Consider This) Ticket scalping:

(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:

An effective price floor will:

If an effective ceiling price is placed on hamburgers,then:

Price floors and ceiling prices:

A price ceiling means that:

(Advanced analysis) Answer the question on the basis of the following information.The demand for commodity X is represented by the equation P = 100 - 2Q and supply by the equation P = 10 + 4Q. Refer to the given information.The equilibrium price is:

(Consider This) Ticket scalping implies that:

Which of the following statements is true about price ceilings?

(Consider This) Ticket scalping refers to:

An effective price floor on wheat will:

(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:

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

(Consider This) Ticket scalping is likely to:

An effective ceiling price will:

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

Black markets are associated with: