Question 1

Use the following information to answer the  questions.
Market for a new hardcover book:
Demand: QS1U1B1dS1U1B0 = 325 - 8 P
Supply: QS1U1B1sS1U1B0 = -60 + 3 P
-What would be the quantity demanded if a price ceiling is set at $20?
A) 90
B) 45
C) 265
D) 165
E) 305

Accepted Answer

D

Question 2

What is a black market?
A) It is an illegal market that emerges when binding and nonbinding price controls are in place.
B) It is an illegal market that emerges when binding price ceilings are in place.
C) It is an illegal market that emerges when binding price floors are in place.
D) It is an illegal market that emerges when only binding price ceilings and binding price floors are in place.
E) It is an illegal market that emerges when no price controls are present.

Accepted Answer

D

Question 3

Use the following information to answer the  questions.
Market for used cars:
Demand: QS1U1B1dS1U1B0 = 154,000 - 86 P
Supply: QS1U1B1sS1U1B0 = -100 + 14 P
-What would be the quantity demanded if a price ceiling is set at $1,000?
A) 500
B) 54,100
C) 68,000
D) 13,900
E) 21,474

Accepted Answer

To find the quantity demanded at a price ceiling of $1,000, substitute $1,000 for P in the demand equation: 154,000 - 86(1,000) = 154,000 - 86,000 = 68,000.

Question 4

If a store sells a good at the market price, even though the government authorities have set the maximum price that can be charged for it, the store is selling the good in a(n):
A) black market for a market price that is higher.
B) black market for a market price that is lower.
C) effort to eliminate a surplus of the good.
D) legal market for a market price that is higher.
E) legal market for a market price that is lower.

Accepted Answer

The answer of If a store sells a good at...

Question 5

If a store sells a good at the market price, even though the government authorities have set the minimum price that can be charged, the store is selling the good in a(n):
A) black market for a market price that is higher.
B) black market for a market price that is lower.
C) effort to eliminate a surplus of the good.
D) legal market for a market price that is higher.
E) legal market for a market price that is lower.

Accepted Answer

The answer of If a store sells a good at...

Question 6

Why does a surplus exist under a binding price floor?
A) It encourages sellers to produce less of the product.
B) It encourages buyers to purchase more of the product.
C) It makes the price so high that the quantity supplied exceeds the quantity demanded in the legal market.
D) It makes the price so low that the quantity demanded exceeds the quantity supplied on the legal market.
E) It discourages sellers from increasing the quality of the product they sell, which, in turn, increases the quantity demanded.

Accepted Answer

A binding price floor sets the price above the market equilibrium price, which means the quantity supplied exceeds the quantity demanded on the legal market. There are more sellers willing to sell at the higher price, but fewer buyers willing to purchase at that price, creating a surplus.

Question 7

What will happen in a market where a binding price ceiling is removed?
A) There will be downward pressure on the price in the legal market.
B) The products sold will improve in quality and become more plentiful.
C) Sellers will face a reduced incentive to sell the product.
D) Buyers will find the good more difficult to obtain in the legal market.
E) There will be increased pressure to buy and sell the good on the black market.

Accepted Answer

Removing a binding price ceiling allows prices to rise to the equilibrium level, encouraging producers to supply more and possibly improve quality to compete, thus making products more plentiful and potentially better in quality.

Question 8

A binding price ceiling will have the following consequences:
A) There will be downward pressure on prices until quantity demanded equals quantity supplied.
B) There will be upward pressure on prices until quantity demanded equals quantity supplied.
C) There are no consequences to a binding price ceiling.
D) The quantity demanded will always exceed the quantity supplied.
E) The quantity demanded will always be smaller than the quantity supplied.

Accepted Answer

The answer of A binding price ceiling will have the...

Question 9

The town of Fairness has a law that says that wages should be high enough to ensure that all people can afford to buy enough food to feed their families. The law that sets food prices low enough to meet these requirements would be an example of a:
A) minimum wage law.
B) fair wage law.
C) price ceiling.
D) black market price.
E) ration price.

Accepted Answer

A price ceiling is a government-imposed limit on how high a price can be charged for a product or service. In this case, the law that sets food prices low enough to ensure that all people can afford to buy enough food to feed their families would be an example of a price ceiling. It is designed to make food more affordable for all members of the community, regardless of their income level.

Question 10

If you were a politician, why would you find it difficult to remove a binding price ceiling?
A) because it greatly benefits firms, and they would spend a lot of money to lobby against the law's repeal
B) because it greatly benefits government, which receives additional tax revenue as a result
C) because it greatly benefits all consumers, and they are also voters
D) because it greatly benefits some consumers who are also voters
E) because it greatly benefits society as a whole, with all consumers able to buy as much as firms produce

Accepted Answer

If some consumers greatly benefit from a binding price ceiling and they are also voters, a politician may find it difficult to remove it as they risk losing the support of those voters. However, if the price ceiling does not benefit a significant number of voters, the politician may not face as much opposition to removing it.

Question 11

Many states have laws that limit the maximum amount of interest that a lender can charge a borrower. Such a law is an example of a(n):
A) equilibrium price.
B) price ceiling.
C) price floor.
D) black market price.
E) ration price.

Accepted Answer

A law that limits the maximum amount of interest that a lender can charge creates a price ceiling, which is a legal maximum price set below the market equilibrium price. It is meant to protect borrowers from excessively high interest rates.

Question 12

Use the following information to answer the questions.
Market for flat-screen TVs:
Demand: QS1U1B1dS1U1B0 = 2,600 - 5 P
Supply: QS1U1B1sS1U1B0 = -1,000 + 10 P
-What would be the quantity demanded if a price ceiling is set at $150?
A) 500
B) 1,850
C) 240
D) 1,350
E) 260

Accepted Answer

The answer of Use the following information to answer the...

Question 13

Use the following information to answer the questions.
Market for flat-screen TVs:
Demand: QS1U1B1dS1U1B0 = 2,600 - 5 P
Supply: QS1U1B1sS1U1B0 = -1,000 + 10 P
-What would be the quantity supplied if a price ceiling is set at $400?
A) 600
B) 240
C) 0
D) 3,000
E) 2,400

Accepted Answer

The answer of Use the following information to answer the...

Question 14

Which of the following is an accurate statement about the consequence of a binding price ceiling?
A) Binding price ceilings do not allow consumers to pay a lower price for the product in the legal market.
B) Binding price ceilings encourage the formation of a black market.
C) Binding price ceilings discourage the formation of a black market.
D) Binding price ceilings create a surplus of the product.
E) Binding price ceilings cause consumers to purchase more of the product in the legal market.

Accepted Answer

Binding price ceilings create a situation where the legal price of a product is set below the market equilibrium price. This causes demand to exceed supply, resulting in shortages. When shortages occur, some buyers may be willing to pay a higher price to get the product, leading to the formation of a black market where the product is sold at a higher price. Therefore, a binding price ceiling encourages the formation of a black market.

Question 15

Use the following information to answer the  questions.
Market for used cars:
Demand: QS1U1B1dS1U1B0 = 154,000 - 86 P
Supply: QS1U1B1sS1U1B0 = -100 + 14 P
-What would be the quantity supplied if a price ceiling is set at $2,000?
A) 100
B) 154,100
C) 27,900
D) 21,474
E) 18,000

Accepted Answer

Setting a price ceiling at $2,000 means P = 2,000. Using the supply equation, Q_s = -100 + 14 P: Q_s = -100 + 14 (2,000) = 27,900. Therefore, the quantity supplied would be 27,900.

Question 16

Why are binding price ceiling laws passed?
A) They make goods more expensive (and profitable) for firms.
B) They encourage sellers to produce more of a good.
C) They encourage producers to sell higher-quality products.
D) They permit customers to obtain higher-quality products.
E) They make a good less expensive for those customers who are able to purchase the good in the legal market.

Accepted Answer

Binding price ceiling laws are passed to make a good less expensive for customers who are able to purchase the good in the legal market. This is achieved by setting a maximum price that sellers can charge, which is typically lower than the market price. It is intended to help low-income consumers afford basic necessities, but can also create shortages and reduce the quality or quantity of goods produced.

Question 17

Why do shortages develop under a binding price ceiling?
A) It encourages sellers to produce more of the product.
B) It encourages buyers to purchase less of the product.
C) It makes the price so low that the quantity demanded exceeds the quantity supplied in the legal market.
D) It makes the price so low that the quantity demanded exceeds the quantity supplied on the black market.
E) It encourages sellers to increase the quality of the product they sell, which, in turn, increases the quantity demanded.

Accepted Answer

The binding price ceiling sets a price below the equilibrium price, making the price so low that buyers demand more of the product than sellers are willing to supply in the legal market. This creates a shortage.

Question 18

Mortimer loves sushi. He loves sushi so much that he asks his congressional representative to work for passage of a binding price ceiling law. Who would be affected by this law and how?
A) Sellers would benefit from such a law because they would receive a higher price for their product.
B) Consumers would benefit from such a law because prices would be lower and all would be able to purchase sushi cheaply.
C) Consumers would benefit from such a law because the sushi would be made of higher-quality fish, and each serving would be larger than it had been with no binding price ceiling in place.
D) Some consumers would benefit from such a law because prices for sushi would be lower for those able to buy it in the legal market.
E) Sellers would benefit from such a law because they would be able to sell higher-quality sushi and thus capture a larger share of the market.

Accepted Answer

If a binding price ceiling law were passed for sushi, it would limit the amount that sellers could charge for the product. This would make sushi more affordable for consumers and benefit those who are able to purchase it legally at the lower price. However, it is important to note that not all consumers would benefit from such a law, as the supply of sushi could decrease if sellers are not able to charge a price that covers their costs. Additionally, those who are willing and able to pay higher prices for higher-quality sushi may not be able to find it as easily if price ceilings are in place.

Question 19

Why do government leaders impose price controls?
A) They are trying to promote the formation of black markets.
B) They are trying to ensure that the market reaches equilibrium.
C) They are trying to ensure that all consumers are able to purchase a specific product.
D) They are trying to ensure that a social goal is satisfied.
E) They are trying to increase the demand curve.

Accepted Answer

Government leaders impose price controls to achieve social goals such as redistributing income, promoting affordability of goods and services, or protecting consumers from price gouging. However, price controls can have unintended consequences such as shortages or inefficiencies in the market.

Question 20

Do all buyers benefit from a binding price ceiling?
A) Yes. A binding price ceiling benefits all buyers because it allows them to obtain the good in the legal market.
B) No. A binding price ceiling benefits only some buyers because not all are able to obtain the good in the legal market.
C) No. A binding price ceiling benefits no buyers because sellers are unwilling to sell any of their products.
D) No. A binding price ceiling benefits only some buyers because, although the price is initially lower, it eventually increases to the equilibrium price.
E) No. A binding price ceiling benefits no buyers because they are unwilling to buy any of the products at a price higher than the equilibrium.

Accepted Answer

A binding price ceiling, set below the market equilibrium price, creates a shortage because the quantity demanded exceeds the quantity supplied at that price. While some buyers benefit from the lower price, not all buyers can purchase the product due to the shortage, meaning only some buyers benefit.

Quiz 5: Price Controls

Use the following information to answer the questions. Market for a new hardcover book: Demand: Q_d = 325 - 8 P Supply: Q_s = -60 + 3 P -What would be the quantity demanded if a price ceiling is set at $20?

What is a black market?

Use the following information to answer the questions. Market for used cars: Demand: Q_d = 154,000 - 86 P Supply: Q_s = -100 + 14 P -What would be the quantity demanded if a price ceiling is set at $1,000?

If a store sells a good at the market price, even though the government authorities have set the maximum price that can be charged for it, the store is selling the good in a(n) :

If a store sells a good at the market price, even though the government authorities have set the minimum price that can be charged, the store is selling the good in a(n) :

Why does a surplus exist under a binding price floor?

What will happen in a market where a binding price ceiling is removed?

A binding price ceiling will have the following consequences:

The town of Fairness has a law that says that wages should be high enough to ensure that all people can afford to buy enough food to feed their families. The law that sets food prices low enough to meet these requirements would be an example of a:

If you were a politician, why would you find it difficult to remove a binding price ceiling?

Many states have laws that limit the maximum amount of interest that a lender can charge a borrower. Such a law is an example of a(n) :

Use the following information to answer the questions. Market for flat-screen TVs: Demand: Q_d = 2,600 - 5 P Supply: Q_s = -1,000 + 10 P -What would be the quantity demanded if a price ceiling is set at $150?

Use the following information to answer the questions. Market for flat-screen TVs: Demand: Q_d = 2,600 - 5 P Supply: Q_s = -1,000 + 10 P -What would be the quantity supplied if a price ceiling is set at $400?

Which of the following is an accurate statement about the consequence of a binding price ceiling?

Use the following information to answer the questions. Market for used cars: Demand: Q_d = 154,000 - 86 P Supply: Q_s = -100 + 14 P -What would be the quantity supplied if a price ceiling is set at $2,000?

Why are binding price ceiling laws passed?

Why do shortages develop under a binding price ceiling?

Mortimer loves sushi. He loves sushi so much that he asks his congressional representative to work for passage of a binding price ceiling law. Who would be affected by this law and how?

Why do government leaders impose price controls?

Do all buyers benefit from a binding price ceiling?