Deck 5: Markets in Action

Question 1

Which of the following is an example of a black- market transaction?

A)A person buys a hotdog on a street corner.
B)A person buys a product at a price below the government- imposed ceiling price.
C)A person buys a product at a price greater than the government- imposed ceiling price.
D)A person buys a product at a price greater than the government- imposed price floor.
E)A person places a bet at a racetrack.

Answer 1

C

Question 2

Consider a competitive labour market.The likely consequence of a binding minimum wage in this labour market is

A)a higher wage for all individuals.
B)a lower wage for all individuals.
C)excess demand for workers.
D)a labour shortage.
E)unemployment.

Answer 2

E

Question 3

Suppose a downward- sloping demand curve intersects the horizontal axis at a point where quantity demanded equals 1250 units.What is the "value" that consumers place on the 1250th unit of this good?

A)a negative value
B)$0
C)a positive value
D)$1250
E)it depends on the position of the supply curve

Answer 3

B

Question 4

An excess supply of some product is the same thing as

A)an excess demand.
B)a shortage.
C)price floor.
D)a surplus.
E)scarcity.

Question 5

In competitive markets,binding price floors and binding price ceilings lead to

A)fairer prices for consumers and producers,and therefore are better for society as a whole.
B)a reduction in deadweight loss.
C)an overall reduction in economic surplus,and therefore to market inefficiency.
D)an overall increase in economic surplus,and therefore to market efficiency.
E)a maximization of economic surplus.

Question 6

Partial- equilibrium analysis is a legitimate method of analysis if the market being studied

A)is large relative to the entire economy such that the feedback effects are obvious to the analyst.
B)is in the manufacturing sector of the economy.
C)is in the financial sector of the economy.
D)is small relative to the entire economy,such that feedback effects on the market being studied are significant.
E)is small relative to the entire economy,such that feedback effects on the market being studied are small.

Question 7

If the government imposes a price ceiling for some product,and a black market subsequently develops that gains control of all of the reduced output of the product,then

A)excess profits will flow back to consumers.
B)the black market price will be lower than the ceiling price.
C)the quantity demanded will exceed quantity supplied at the black market price.
D)the black market price will be higher than the free- market equilibrium price.
E)consumers will be better off than they would be in the absence of the black market.

Question 8

Which of the following statements about government price controls is most accurate.They

A)ensure that the actual price is at its free- market equilibrium.
B)inform consumers what is the maximum price they should pay.
C)usually set upper or lower limits on prices.
D)act as a guideline to producers as to what is a fair price.
E)ensure that transactions take place at a fair price.

Question 9

Consider partial and general equilibrium analysis.If a specific market is quite small relative to the entire economy

A)partial- equilibrium analysis is the only tool available to understand this market.
B)general- equilibrium analysis will be necessary in order to understand this market.
C)changes in this market will have considerable effects on other markets.
D)the feedback effects on this market from induced changes in other markets will be very small.
E)government intervention is necessary to link it to other markets.

Question 10

In Canada we have government intervention in the dairy market in the form of quotas on milk production.What are two predicted economic effects of this policy?

A)an equitable distribution of income between dairy farmers and consumers of dairy products; and a reduction in the total amount of economic surplus in the dairy market.
B)a redistribution of income from dairy farmers to consumers of dairy products; a reduction in the total amount of economic surplus in the dairy market.
C)a redistribution of income from consumers of dairy products to dairy farmers; and a reduction in the total amount of economic surplus in the dairy market.
D)a redistribution of income from dairy farmers to consumers of dairy products; and an increase in the total amount of economic surplus in the dairy market.
E)a redistribution of income from consumers of dairy products to dairy farmers; and a reduction in deadweight loss in the dairy market.

Question 11

Consider the market for pulp and paper.Suppose,in an attempt to help this industry,the government sets a price floor above the free- market equilibrium price.The result will be

A)the quantity supplied will exceed quantity demanded and there will be a surplus in the market.
B)a continuation of the market- determined equilibrium price and quantity.
C)increased government revenue.
D)the quantity demanded will exceed quantity supplied and there will be a shortage in the market.
E)a new free- market equilibrium at a higher price and lower output level.

Question 12

An excess demand for some product is the same thing as

A)a surplus.
B)an excess supply.
C)black market.
D)a shortage.
E)price ceiling.

Question 13

Suppose a negatively sloped demand curve and a positively sloped supply curve intersect at a price and quantity combination of $100 and 600 units of the good.But suppose that producers actually produce and sell 610 units.What can we correctly say about market efficiency in this case?

A)This market is not efficient because quantity demanded for the good exceeds quantity supplied.
B)This market is efficient because economic surplus is maximized as production and consumption increase simultaneously.
C)The value placed on the final 10 units of the good by consumers exceeds the additional costs associated with their production - this market is not efficient.
D)The value placed on the final 10 units of the good by consumers is less than the additional costs associated with their production - this market is not efficient.
E)The production and consumption of the additional 10 units of the good increases total economic surplus and increases market efficiency.

Question 14

The use of legislated rent controls typically

A)has no effect on the distribution of income between tenants and landlords or on the availability of rental accommodations.
B)affects the distribution of income between tenants and landlords and also affects the availability of rental accommodations.
C)affects the distribution of income between tenants and landlords but does not affect the supply of rental accommodations.
D)has much worse effects in the short run than in the long run.
E)has no effect on the distribution of income between tenants and landlords but does affect the supply of rental accommodations.

Question 15

If the equilibrium price for some product is $1000,a price ceiling of $1200 will result in

A)the same general effects as a price ceiling of $600.
B)the same general effects as an administered price of $1200.
C)the same general effects as a price floor of $1200.
D)massive surpluses of the good.
E)no effects because the price ceiling is not binding at that price.

Question 16

In which type of market would a government be most likely to establish a "legal" price floor?

A)electricity market
B)natural gas market
C)housing market
D)diamond market
E)labour market

Question 17

The shortages associated with a binding price ceiling will be the smallest when

A)supply is highly elastic and demand is highly inelastic.
B)supply is highly inelastic and demand is highly elastic.
C)both supply and demand are highly elastic.
D)both supply and demand are highly inelastic.
E)none of the above-the size of the shortage has nothing to do with demand and supply elasticities.

Question 18

A binding price floor is a

A)minimum price,below equilibrium,below which price is not allowed to fall.
B)maximum price,below equilibrium,which price is not allowed to exceed.
C)minimum price,above equilibrium,below which price is not allowed to fall.
D)maximum price,above equilibrium,which price is not allowed to exceed.
E)any minimum price below which price is not allowed to fall.

Question 19

Suppose the government establishes a binding price floor for some product.At the price floor,

A)both sellers and buyers are exchanging the free- market equilibrium quantity.
B)although consumers are purchasing all of the product that they desire at this price,the sellers are not selling all that they desire.
C)a new free- market equilibrium price and quantity will be established.
D)both sellers and buyers are satisfied with the quantity that is being exchanged.
E)although sellers are selling all of the product that they desire,consumers are not able to buy all that they desire.

Question 20

Suppose the government establishes a ceiling on the price of rental accommodation that is lower than the free- market equilibrium price.In this case,

A)a surplus of current rental units will develop.
B)the rental housing market will be unaffected.
C)the current stock of rental housing will be better maintained as there is a shortage of housing.
D)those people who obtain rental units at the ceiling price will benefit.
E)construction of new rental units will be encouraged.

Question 21

Consider the demand curve for a product such as movie tickets,which shows how many tickets consumers wish to purchase at each possible price.Alternatively,we could view this demand curve in the following way:

A)for each possible price,the demand curve shows the economic surplus generated by the purchase of the tickets.
B)for each quantity of movie tickets,the demand curve shows the additional cost to the producer of supplying that particular movie ticket.
C)for each quantity of movie tickets,the demand curve shows the economic surplus generated by the purchase of the tickets.
D)for each quantity of movie tickets,the demand curve shows the extent of market inefficiency and deadweight loss.
E)for each quantity of movie tickets,the price on the demand curve shows the value that consumers place on that particular movie ticket.

Question 22

Government price controls are policies that attempt to maintain the

A)price requested by the seller.
B)the price at some disequilibrium value.
C)quantity sold at less than the quantity bought.
D)quantity bought at less than the quantity sold.
E)market price at equilibrium.

Question 23

The price of a good or a service can be determined by free interaction of demand and supply or by a government price regulation.One important difference between these two price- determining methods is

A)one is capitalist and the other is communist.
B)there are no shortages or surpluses at the free- market equilibrium price.
C)the government is in the best position to know the needs of the people.
D)that a regulated price above the equilibrium price will always result in shortages.
E)regulated prices are fairer since more people can then afford the goods or services.

Question 24

If the equilibrium price for some product is $1000,a price ceiling of $800 will result in

A)the same general effects as a price ceiling of $1200.
B)the same general effects as a price ceiling of $600.
C)the same general effects as a price floor of $1200.
D)massive surpluses of the good.
E)no effects because the price ceiling is not binding at that price.

Question 25

Consider the following demand and supply schedules for some agricultural commodity. $$\begin{array} { | c | l | c | } \hline \text { Price } & \text { Quantity Supplied } & \text { Quantity Demanded } \\\hline \$ 10 & 300 & 1100 \\\hline \$ 30 & 500 & 900 \\\hline \$ 50 & 700 & 700 \\\hline \$ 70 & 900 & 500 \\\hline \$ 90 & 1100 & 300 \\\hline \$ 110 & 1300 & 100 \\\hline\end{array}$$ TABLE 5- 2

-Refer to Table 5- 2.Consider the market- clearing equilibrium.If the government then imposes a production quota of 500 units,the deadweight loss that is created is equal to

A)$2000.
B)$3000.
C)$4000.
D)$5000.
E)$1000.

Question 26

The long- run elasticity of supply of rental housing is greater than the short- run elasticity of supply because

A)investment in new rental housing has such a short payback period.
B)changes in supply can occur very quickly,especially when rent controls are in place.
C)in the long run,landlords have no incentive to alter the supply of rental housing.
D)changes in supply occur only after investment decisions are made regarding,for example,new construction or conversion of rental housing to other uses.
E)the demand for rental housing is changing continuously.

Question 27

With respect to some commodity,X,if government objectives are to (1)restrict production and (2)keep prices down to protect consumers,then legislated price ceilings will

A)only have an effect on commodities at the international level.
B)satisfy both goals but only if a black market develops.
C)satisfy both goals as long as a black market does not develop.
D)satisfy only the second goal if a black market develops.
E)be a dismal failure as neither goal can ever be achieved with price ceilings.

Question 28

Consider a market in which there is an administered price.If there is excess demand,

A)there are unsuccessful sellers.
B)none of the product will be exchanged.
C)the market is in its free- market equilibrium.
D)the product has not reached the point of saturation.
E)the market is in disequilibrium.

Question 29

If a binding price ceiling is in effect and if the demand for the product increases,one consequence would be

A)an increase in the amount of excess demand.
B)a decrease in the amount of excess supply.
C)an increase in the amount of excess supply.
D)a decrease in the amount of excess demand.
E)no change in the excess supply or demand for the product.

Question 30

Suppose the government imposes an administered price in the market for gold,which results in an excess supply.In this situation,

A)the market is in disequilibrium.
B)no gold will be exchanged.
C)there are unsuccessful buyers.
D)the market is in equilibrium.
E)the gold market has not reached the point of saturation.

Question 31

Consider the market for rental accommodation.In the short run,the supply of this product tends to be

A)very or completely price inelastic.
B)unit price elastic.
C)infinitely price elastic.
D)irrelevant to the housing market price.
E)very price elastic.

Question 32

Consider a competitive market for good X.A binding price floor and a binding price ceiling in this market would be similar to each other in that

A)each type of price control results in a higher price paid by consumers,and therefore to a reduction in economic surplus.
B)the units of good X that will no longer be produced or consumed will not generate any economic surplus.
C)each type of price control will lead to a reduction in deadweight loss and therefore an increase in efficiency in the market for good X.
D)additional units of good X will be produced and consumed,leading to an increase in economic surplus.
E)each type of price control results in a lower price received by sellers,and therefore to a reduction in economic surplus.

Question 33

Who are likely to be the biggest beneficiaries of rent controls?

A)prospective tenants
B)landlords
C)current tenants
D)construction companies
E)no group will benefit from the controls

Question 34

If the government fixes the price of good X above its free- market equilibrium level,we should expect

A)a shortage of good X to occur.
B)a black market to arise for good X.
C)a surplus of good X to occur.
D)a new free- market equilibrium price to be established.
E)an excess demand for good X.

Question 35

Consider the following demand and supply schedules for some agricultural commodity. $$\begin{array} { | c | l | c | } \hline \text { Price } & \text { Quantity Supplied } & \text { Quantity Demanded } \\\hline \$ 10 & 300 & 1100 \\\hline \$ 30 & 500 & 900 \\\hline \$ 50 & 700 & 700 \\\hline \$ 70 & 900 & 500 \\\hline \$ 90 & 1100 & 300 \\\hline \$ 110 & 1300 & 100 \\\hline\end{array}$$ TABLE 5- 2

-In free and competitive markets,shortages are eliminated by

A)rationing.
B)price increases.
C)black markets.
D)price decreases.
E)government price controls.

Question 36

Which of the following is true of price ceilings?

A)With a non- binding ceiling price an excess demand for the product will develop.
B)With a binding ceiling price a surplus of the commodity will develop.
C)Firms must charge the price established as a price ceiling.
D)If the ceiling price is set above the free- market equilibrium price it will have no effect on the market.
E)A ceiling price below the free- market equilibrium price is not binding.

Question 37

Each point on a supply curve shows the _ _ acceptable price to firms for selling that unit; this price reflects to firms from producing that unit.

A)minimum; the additional value
B)minimum; the equilibrium price
C)minimum; the additional cost
D)maximum; the additional value
E)maximum; the additional cost

Question 38

In general (and in the absence of market failures),economic surplus will be maximized and economic efficiency will be achieved

A)when consumers and producers can agree on the most advantageous division of economic surplus.
B)when the government successfully determines what is best for society as a whole.
C)when the government is able to impose an equilibrium price.
D)in a competitive market where price is free to achieve its market- clearing equilibrium level.
E)when resources are allocated such that production of the good is maximized.

Question 39

If the free- market equilibrium price for some product is $25,then a legal price ceiling set at $15 will bring about

A)the same general effects as an equilibrium price of $15.
B)no change in the market outcomes.
C)the same general effects as a price ceiling of $25.
D)a surplus of the good.
E)a shortage of the good.