Question 1

If the demand curve for clams is downward-sloping and the supply curve is upward-sloping, a quota that is set below the equilibrium quantity will result in a supply price higher than the demand price.

Accepted Answer

A quota set below the equilibrium quantity will result in a shortage, causing the demand price to exceed the supply price as consumers compete for the limited available supply.

Question 2

The minimum wage, which sets a lower limit on the wages that workers can earn, is often above the equilibrium price. The minimum wage is an example of:
A) a price floor.
B) a price ceiling.
C) a quota.
D) an equilibrium price.

Accepted Answer

The minimum wage sets a legal minimum price for labor, and this price is often set above the equilibrium price in the market. This creates a price floor, which means that employers are required to pay their workers at least a certain amount, even if the market wage rate would be lower.

Question 3

In the rental housing market with price controls, the quantity of rental houses demanded exceeds the quantity of rental housing supplied. This price control must be a:
A) price ceiling.
B) price floor.
C) quota.
D) quantity control.

Accepted Answer

A price ceiling is a government-imposed limit on how high prices can be charged for goods and services. In this case, the price control is creating a situation in which the quantity demanded exceeds the quantity supplied, indicating that the government has set the price below the equilibrium level. This is a common result of price ceilings in housing markets, as landlords may choose to reduce the supply of rental housing or exit the market altogether when they are unable to earn market-based rents.

Question 4

How does a price ceiling cause deadweight loss in the market?

Accepted Answer

The answer of How does a price ceiling cause deadweight...

Question 5

A quota in the market for shrimp will cause inefficiency because mutually beneficial transactions will not occur.

Accepted Answer

Quotas limit the amount of shrimp that can be produced and sold, creating an artificial scarcity. This can lead to higher prices and reduced availability for consumers, while also preventing potential sellers from entering the market and making mutually beneficial transactions with buyers. As a result, quotas can cause inefficiency in the market.

Question 6

Suppose the market price of wheat is $7 a bushel and a price ceiling is set at $9 a bushel. What is the impact of this price ceiling?

Accepted Answer

The answer of Suppose the market price of wheat is...

Question 7

How could a minimum wage cause an incentive for illegal hiring practices?

Accepted Answer

The answer of How could a minimum wage cause an...

Question 8

Quotas are more effective than price controls because unlike price controls, quotas do not cause deadweight loss.

Accepted Answer

Quotas can also lead to deadweight loss, as they limit the quantity of a good produced or consumed, leading to inefficient allocation of resources and potential market distortions. Both quotas and price controls can have negative impacts on market efficiency.

Question 9

How does an effective price ceiling affect the quantity demanded and the quantity supplied in a competitive market?

Accepted Answer

The answer of How does an effective price ceiling affect...

Question 10

A rent control scheme setting a maximum amount of rent paid below the equilibrium rental price would most likely be supported by:
A) people who wish to rent such an apartment.
B) people who own rental apartments.
C) both renters and owners.
D) neither renters nor owners.

Accepted Answer

The answer of A rent control scheme setting a maximum...

Question 11

The quota rent is the result of a supply price that is above the demand price.

Accepted Answer

Quota rent is the economic rent a producer receives from the difference between the domestic price of a good, which is elevated due to the quota, and the world price. It does not result from a supply price being above the demand price but from the limitation on quantity supplied, which increases the domestic price above the world price.

Question 12

How do price ceilings cause black markets?

Accepted Answer

The answer of How do price ceilings cause black markets?...

Question 13

The quota rent for a New York taxicab owner is equal to the market price of the license that allows him to drive the cab.

Accepted Answer

A quota rent is the difference between the market price and the opportunity cost of a resource, and in this case, the resource is the license. Therefore, the quota rent for a New York taxicab owner is indeed equal to the market price of the license.

Question 14

Deadweight loss is the lost gains associated with transactions that do not occur because of market intervention, such as a quota.

Accepted Answer

Deadweight loss occurs when market intervention, such as a quota, prevents mutually beneficial transactions from taking place, resulting in a loss of potential gains.

Question 15

The government might impose a price ceiling if _____ can make a strong moral or political argument for _____ prices.
A) demanders; lower
B) suppliers; lower
C) demanders; higher
D) suppliers; higher

Accepted Answer

A price ceiling is meant to help demanders who may not be able to afford higher prices from suppliers. Therefore, it is more likely that a strong moral or political argument would be made for lower prices for demanders rather than higher prices for suppliers.

Question 16

A quota rent for tuna is the difference between the demand price and the supply price if a quota limit is imposed in the tuna market.

Accepted Answer

A quota rent is the additional profit earned by fishermen when a quota limit is imposed in the market that restricts the total amount of fish that can be caught. It is the difference between the demand price and the supply price of the fish. This creates scarcity in the market, driving up the price and allowing fishermen who have been allocated a quota to earn a higher profit.

Question 17

The government might impose a price floor if _____ can make a strong moral or political argument for _____ prices.
A) demanders; lower
B) suppliers; lower
C) demanders; higher
D) suppliers; higher

Accepted Answer

The government may impose a price floor if suppliers can make a strong moral or political argument for higher prices. A price floor is a minimum price set by the government to prevent the market price from falling below a certain level. This measure is usually taken to help suppliers or producers of a product by ensuring that they receive a fair price for their goods. Therefore, choice D is the correct answer.

Question 18

The quota rent is the same thing as deadweight loss.

Accepted Answer

Quota rent is the additional profit earned by domestic producers due to a quota restriction on imports. Deadweight loss, on the other hand, refers to the efficiency loss that occurs when the equilibrium quantity and price of a good are not at the socially optimal level. They are two different concepts.

Question 19

A price floor or a price ceiling is an example of:
A) a quantity control.
B) a price control.
C) market equilibrium price.
D) a quota.

Accepted Answer

Price floor or price ceiling is an example of a price control, where the government intervenes to regulate prices in the market. A quantity control, on the other hand, restricts the quantity of goods that can be produced or sold in the market. Market equilibrium refers to the price at which the quantity demanded equals the quantity supplied, whereas a quota sets a numerical limit on the quantity of goods that can be imported or exported.

Question 20

How is a quota limit different from or similar to a price control?

Accepted Answer

The answer of How is a quota limit different from...

Quiz 5: Price Controls and Quotas- Meddling With Markets