Question 1

Let's say that you are a politician who promises cheaper gasoline for everyone in the country if you are elected.Once you are elected,you make gas cheaper by imposing a price ceiling that is one full dollar less than the market's equilibrium price.What would be the reaction of the sellers of gasoline and of the public to your price ceiling law? Would you expect to be reelected in the long run?

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Question 2

Use the following table to answer the questions that follow.
 
-As a politician,you would be more inclined to propose an increase in the minimum wage when you believe that the new minimum wage would:
A)remain below the equilibrium wage and be binding.
B)remain above the equilibrium wage and be binding.
C)remain below the equilibrium wage and be nonbinding.
D)remain above the equilibrium wage and be nonbinding.
E)be equal to the equilibrium wage.

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Question 3

Some states and localities have laws that make it illegal to resell event tickets at prices higher than the original,legal market price.What would be the positive and negative consequences to such a law?

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Question 4

Use the following table to answer the questions that follow.
 
-When market participants are allowed through their interactions to find the price,there will be
equilibrium where the quantity supplied by buyers equals the quantity supplied by sellers.If this is the case,why does the government intervene in certain markets by imposing a price floor? Why does the government intervene in certain markets by imposing a price ceiling? Which market participant (the buyer or the seller)will lobby the government to secure passage of a binding price floor? Which one will lobby for a binding price ceiling?

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Question 5

What is a black market? Under what conditions does such a market emerge? How do the prices charged on the black market compare to the conditions that exist in the legal market?

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Question 6

As a voter,why would or wouldn't you vote for a referendum calling for an increase in the minimum wage? What consequences would result from raising the minimum wage?

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Question 7

Explain why a shortage occurs in a market where a binding price ceiling exists.Does a price ceiling improve the operation of the market?

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Question 8

Discuss why any society would want a binding price floor law on a commodity such as corn.Who would benefit? Who would suffer? If it is the case that more suffering is caused by the presence of a price floor law,why does it remain in effect?

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Question 9

Use the following table to answer the questions that follow.
 
-Why is raising the minimum wage generally ineffective?
A)Most employers purchase labor on the black market,where the binding price floor is not present.
B)The minimum wage is an amount suggested by the government,and employers are under no obligation to pay their employees the suggested basic wage.
C)The minimum wage is usually set below the prevailing equilibrium wage and is frequently nonbinding.
D)Employees are often unconcerned with their wages and care more about the benefits that come with the job.
E)Most employees who hold low-wage jobs work in the black market,where the binding price floor doesn't exist.

Accepted Answer

The minimum wage is generally ineffective because it is often set below the prevailing equilibrium wage, which means it is nonbinding and does not affect the market wage. Therefore, option C is the correct choice. Options A and E are incorrect because they suggest that most low-wage workers are in the black market, which is untrue. Option B is incorrect because employers are legally obligated to pay their employees at least the minimum wage. Option D is incorrect because employees are typically concerned about both their wages and benefits.

Question 10

Use the following table to answer the questions that follow.
 
-Which of the following is true,holding all other things constant,when comparing regions that impose a higher minimum wage to regions that impose a lower minimum wage?
A)In regions with the highest minimum wage,most of the jobs require low skills and workers are not productive enough to get paid the higher wage.
B)In regions with the lowest minimum wage,most of the jobs require technical skills and no one works minimum wage jobs.
C)In regions with the lowest minimum wage,the price control is nonbinding; in the regions with the highest minimum wage,the price control is binding.
D)In regions with the lowest minimum wage,the price control is binding; in the regions with the highest minimum wage,the price control is nonbinding.
E)In regions with the highest minimum wage,the minimum wage law is legally enforced; in regions with the lowest minimum wage,the law is not strongly enforced.

Accepted Answer

In economic terms, a price control becomes binding when it is set above the equilibrium price, causing a surplus or shortage. For minimum wage, if it is set above the market-clearing level (where supply meets demand), it becomes binding, leading to potential unemployment or labor surplus. Conversely, if the minimum wage is below the equilibrium, it's nonbinding, as the market wage is naturally higher. Thus, in regions with a higher minimum wage, the control is more likely to be binding, affecting employment and wages, while in regions with a lower minimum wage, the control is nonbinding, allowing market forces to dictate wages.

Question 11

If a price ceiling or price floor existed where you lived,would you be willing to purchase products on the black market? What would you identify as a consequence to engaging in transactions on the black market over the short run and the long run?

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Question 12

Why is it that price gouging laws (laws intended to place a temporary limit on the price that can be charged in a time of emergency)do not help those who are affected by the emergency which triggered the law?

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Question 13

Why are the long-run consequences of a price control different from the short-run consequences of a price control? Be specific,and consider both price floors and price ceilings in your answer.

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Question 14

Use the following table to answer the questions that follow.
 
-How would an economist explain a teenager's continued unemployment where there exists a minimum wage?
A)The minimum wage law made it such that the quantity of labor willing to work at that wage was less than the quantity of labor demanded at that wage.
B)The minimum wage law made it illegal to hire teenagers because they likely would have been unable to work a minimum number of hours.
C)The minimum wage law made it such that the quantity of labor willing to work at that wage was greater than the quantity of labor demanded at that wage.
D)The minimum wage law made it such that the market had reached equilibrium.
E)The minimum wage law was nonbinding.

Accepted Answer

The minimum wage law can lead to a situation where the quantity of labor (people willing to work) at that wage exceeds the quantity of labor demanded by employers. This can result in unemployment for some workers, including teenagers, as employers are not willing or able to hire everyone who is willing to work at the minimum wage.

Quiz 5: Price Controls

Use the following table to answer the questions that follow. -As a politician,you would be more inclined to propose an increase in the minimum wage when you believe that the new minimum wage would: