Question 1

In a competitive market free of government regulation,

Accepted Answer

In a competitive market, the forces of supply and demand interact to determine the market price and quantity. When the price is too high, quantity supplied will exceed quantity demanded, resulting in a surplus. In contrast, when the price is too low, quantity demanded will exceed quantity supplied, resulting in a shortage. The price adjusts until the quantity demanded equals the quantity supplied, which is known as the equilibrium price and quantity. Therefore, choice C is the best answer.

Question 2

Suppose the government has imposed a price ceiling on sliced sandwich bread.Which of the following events could transform the price ceiling from one that is binding to one that is not binding?

Accepted Answer

A decrease in the price of unsliced bread, which is a substitute for sliced bread, would encourage consumers to switch to unsliced bread, reducing demand for sliced bread and making the price ceiling no longer binding. The other options (A, B, and D) do not directly impact the price of sliced bread and therefore do not affect whether or not the price ceiling is binding.

Question 3

Which of the following would be the most likely result of a binding price ceiling imposed on the market for rental cars?

Accepted Answer

When a price ceiling is imposed, rental car companies are not able to charge the market-clearing price. As a result, there will be excess demand for rental cars, leading to a shortage of available cars. This means that rental car companies will likely slow down the replacement of old cars with newer ones, as they will not be able to make as much profit from renting them out. The other choices are unlikely to be the result of a price ceiling on rental cars.

Question 4

Which of the following would be the least likely result of a binding price ceiling imposed on the market for rental cars?

Accepted Answer

A binding price ceiling would result in a shortage of rental cars, as the quantity demanded exceeds the quantity supplied at the artificially low price. Therefore, rental car companies would not need to incentivize customers with free gasoline as an incentive to rent, and instead may have to ration the available cars. However, the other three options are possible negative consequences of a price ceiling on rental cars - if the price companies can charge is limited, they may cut back on maintenance and investment in new cars to save costs.

Question 5

In a free,competitive market,what is the rationing mechanism?

Accepted Answer

In a free, competitive market, the rationing mechanism is price. The price of a good or service determines how much of it is demanded and supplied, and therefore allocates scarce resources among competing uses. As the price of a good or service rises, demand for it tends to decrease, while supply tends to increase, until a market equilibrium is reached where quantity demanded equals quantity supplied. This mechanism ensures that resources are efficiently allocated to their highest-valued uses, as determined by consumers' willingness to pay and producers' costs. Seller bias, buyer bias, and government law can affect the market outcome, but they do not determine the rationing mechanism.

Question 6

A price ceiling is

Accepted Answer

A price ceiling is a legal maximum on the price at which a good can be sold. It is often imposed by governments in order to protect consumers from high prices in markets where there is limited competition or in which prices are rising rapidly. A price ceiling can cause shortages and long wait times for consumers due to suppliers' inability to charge a price that covers their costs.

Question 7

Which of the following is not a function of prices in a market system?

Accepted Answer

Prices do not ensure an equal distribution of goods and services among consumers. In fact, prices can sometimes result in unequal distribution as those who can afford to pay higher prices will be able to purchase more goods and services. The other options (A, B, and C) are all functions of prices in a market system.

Question 8

A price ceiling is binding when it is set

Accepted Answer

A price ceiling is binding when it is set below the equilibrium price. When the price ceiling is below the equilibrium price, it creates a shortage because the quantity demanded increases while the quantity supplied declines. This shortage results in consumers being unable to purchase the quantity they desire, leading to an inefficient allocation of resources.

Question 9

If the government removes a binding price ceiling from a market,then the price received by sellers will

Accepted Answer

A binding price ceiling sets a maximum price that can be charged for a good or service. If the government removes the price ceiling, then sellers are free to charge a higher price. This will increase the price received by sellers (as per the law of supply) and also encourage more sellers to enter the market, increasing the quantity sold. Hence, the correct answer is that the price received by sellers will increase, and the quantity sold in the market will increase (option D).

Question 10

A price ceiling will be binding only if it is set

Accepted Answer

A price ceiling is a government-imposed limit on how high a price can be charged for a particular good or service. If the price ceiling is set above the equilibrium price, it will not be binding because the market price will already be lower than the government-imposed limit. However, if the price ceiling is set below the equilibrium price, it will create a shortage because the demand for the good or service will exceed the supply at the lower price. Therefore, the only choice that makes sense is C, as a price ceiling will only be binding if it is set below the equilibrium price.

Question 11

Suppose the government has imposed a price ceiling on laptop computers.Which of the following events could transform the price ceiling from one that is not binding into one that is binding?

Accepted Answer

A price ceiling is not binding when it is set above the equilibrium price. In this scenario, if the number of firms selling laptop computers decreases, the supply of laptops decreases, which shifts the equilibrium price higher. If the new equilibrium price is above the price ceiling, the price ceiling becomes binding and the market price is capped at the price ceiling. The other choices are not relevant to the determination of whether the price ceiling is binding or not.

Question 12

When a binding price ceiling is imposed on a market to benefit buyers,

Accepted Answer

When a binding price ceiling is imposed, some buyers may benefit from the lower price, but the quantity demanded will exceed the quantity supplied, leading to a shortage. This shortage means that not all buyers who want to buy the good can do so, so some buyers are harmed by being unable to purchase the good. Therefore, some buyers benefit, and some buyers are harmed.

Question 13

If a price ceiling is not binding,then

Accepted Answer

If a price ceiling is not binding, then the equilibrium price is below the price ceiling. This is because a price ceiling is only binding if the equilibrium price is above the price ceiling.

Question 14

If the government removes a binding price ceiling from a market,then the price paid by buyers will

Accepted Answer

A binding price ceiling keeps the price below the equilibrium, causing a shortage. Removing it allows the price to rise to equilibrium, increasing both price and quantity sold.

Question 15

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling becomes effective,

Accepted Answer

Imposing a price ceiling means that the price cannot go above a certain level. This leads to a situation where the price is below the equilibrium price, causing a shortage in the market. As a result, less of the good is bought and sold. Therefore, choice A is the correct answer. Choice B is incorrect because the quantity demanded may not necessarily decrease, but the quantity supplied will decrease due to the shortage. Choice C is also incorrect because the quantity supplied will likely decrease due to the lower price ceiling. Choice D is incorrect because the price cannot rise above the price ceiling.

Question 16

Which of the following is the most likely explanation for the imposition of a price ceiling on the market for milk?

Accepted Answer

The most likely explanation for the imposition of a price ceiling on the market for milk is that buyers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling. Price ceilings are typically imposed in response to concerns over the affordability of necessary goods or to protect consumers from exploitation by sellers. In this case, it is likely that policymakers have responded to pressure from buyers of milk who are concerned about the cost of the product.

Question 17

If a price ceiling is not binding,then

Accepted Answer

If a price ceiling is not binding, it means that the market price is already below the ceiling, so there will be no effect on the price or quantity sold. There will be neither a surplus nor a shortage, and the market will operate normally.

Question 18

When a binding price ceiling is imposed on a market,

Accepted Answer

When a binding price ceiling is imposed on a market, the price can no longer rise to balance the quantity demanded and the quantity supplied. This means that the price no longer serves as a rationing device, and there may be shortages or surpluses of the good or service. While it is possible that some buyers may benefit from the lower price, others may be unable to purchase the good or may face long waiting times or poor quality due to the imbalance of supply and demand. The quantity supplied at the price ceiling may be less than, equal to, or greater than the quantity that would have been supplied without the price ceiling, depending on the specific conditions of the market. Therefore, only choice A is the best answer.

Question 19

If a nonbinding price ceiling is imposed on a market,then the

Accepted Answer

A nonbinding price ceiling means that the market price is already below the ceiling, so setting a ceiling does not change the market price. Therefore, the quantity sold in the market will stay the same.

Question 20

A legal maximum on the price at which a good can be sold is called a price

Accepted Answer

A legal maximum on the price at which a good can be sold is called a price ceiling.

Quiz 6: Supply Demand and Government Policies: Controls on Prices

In a competitive market free of government regulation,

Suppose the government has imposed a price ceiling on sliced sandwich bread.Which of the following events could transform the price ceiling from one that is binding to one that is not binding?

Which of the following would be the most likely result of a binding price ceiling imposed on the market for rental cars?

Which of the following would be the least likely result of a binding price ceiling imposed on the market for rental cars?

In a free,competitive market,what is the rationing mechanism?

A price ceiling is

Which of the following is not a function of prices in a market system?

A price ceiling is binding when it is set

If the government removes a binding price ceiling from a market,then the price received by sellers will

A price ceiling will be binding only if it is set

Suppose the government has imposed a price ceiling on laptop computers.Which of the following events could transform the price ceiling from one that is not binding into one that is binding?

When a binding price ceiling is imposed on a market to benefit buyers,

If a price ceiling is not binding,then

If the government removes a binding price ceiling from a market,then the price paid by buyers will

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling becomes effective,

Which of the following is the most likely explanation for the imposition of a price ceiling on the market for milk?

If a price ceiling is not binding,then

When a binding price ceiling is imposed on a market,

If a nonbinding price ceiling is imposed on a market,then the

A legal maximum on the price at which a good can be sold is called a price