Question 1

What is the difference between scarcity and a shortage?

Accepted Answer

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

Question 2

Table 4-9
  Table 4-9 above contains information about the corn market. Answer the following questions based on this table.
-Refer to Table 4-9. 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 4-9
  Table 4-9 above contains...

Question 3

Rent control is an example of a price ceiling.

Accepted Answer

Rent control places a legal limit on the maximum amount landlords can charge for rent, which is an example of a price ceiling.

Question 4

Price ceilings result in shortages.

Accepted Answer

When the government imposes a price ceiling, it sets a maximum legal price below the market equilibrium price. This leads to an increase in demand and a decrease in supply as producers are not willing to produce goods/services at the lower price. As a result, shortages occur as demand exceeds supply.

Question 5

Figure 4-13 
-Refer to Figure 4-13, 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 4-13 
-Refer to Figure 4-13, which...

Question 6

What is a black market?

Accepted Answer

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

Question 7

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. It is typically set by government intervention in an effort to protect consumers from price gouging or to make goods and services more affordable.

Question 8

The minimum wage is an example of a price ceiling.

Accepted Answer

The answer of The minimum wage is an example of...

Question 9

Black markets only exist in developing nations.

Accepted Answer

Black markets can exist in any country or economic system where goods and services are restricted or banned, and where there is demand for those goods and services. Developed countries also have black markets for things like illegal drugs, counterfeit goods, and services like prostitution.

Question 10

There is a shortage of every good that is scarce.

Accepted Answer

Scarcity refers to the basic economic problem that resources are limited while desires and needs are unlimited. A good being scarce means it is not available in sufficient quantities to satisfy all the desires for it, but this does not necessarily mean there is a shortage. A shortage occurs when the quantity demanded of a good exceeds the quantity supplied at a given price, which can happen with or without scarcity.

Question 11

Government intervention in agriculture began in the United States in the 1890s.

Accepted Answer

Government intervention in agriculture in the United States began earlier, notably with the Morrill Act of 1862, which established land-grant colleges for agricultural education, and the establishment of the U.S. Department of Agriculture in 1862.

Question 12

Figure 4-12 
-Refer to Figure 4-12, which shows the market for watermelons. Suppose the government imposes a price floor of Pw. How will the price floor affect the quantity supplied, quantity demanded and quantity exchanged?

Accepted Answer

The answer of Figure 4-12 
-Refer to Figure 4-12, which...

Question 13

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 14

Price floors are illegal in the United States.

Accepted Answer

Price floors are not illegal in the United States, but certain forms of them (such as minimum wage laws) are regulated by the government.

Question 15

All renters benefit from rent control and all landlords lose.

Accepted Answer

Rent control may appear to benefit renters by keeping their rent low, but it also makes it difficult for them to find affordable housing due to low availability, limits investment in new housing, and forces landlords to cut back on maintenance and improvements. Landlords, on the other hand, suffer from the inability to increase their income to keep up with inflation and the cost of maintenance and improvements.

Question 16

Rent control is an example of a price floor.

Accepted Answer

Rent control is an example of a price ceiling, not a price floor, because it sets a maximum price that can be charged for rental housing.

Question 17

Explain how both renters and landlords could be either winners or losers with the imposition of rent control.

Accepted Answer

The answer of Explain how both renters and landlords could...

Question 18

Companies in the sharing economy, such as Airbnb and Uber, have the potential to increase consumer surplus and decrease deadweight loss. This would occur by ________ the equilibrium price in their market, and by doing so ________ efficiency.

Accepted Answer

Sharing economy companies like Airbnb and Uber have introduced new suppliers to the market, increasing competition, which tends to lead to a decrease in the equilibrium price since there is now more supply to meet the demand. Lowering the equilibrium price results in more affordable services for consumers, which increases consumer surplus. The decrease in price also leads to a more efficient market, meaning more transactions are occurring and less deadweight loss as resources are used more optimally.

Question 19

Shortage means the same thing as scarcity.

Accepted Answer

The answer of Shortage means the same thing as scarcity....

Question 20

Price ceilings are illegal in the United States.

Accepted Answer

Price ceilings are not illegal in the United States, but they are typically only implemented in certain markets and under specific conditions. However, they can cause unintended economic consequences such as shortages or decreased quality of goods and services.

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