Question 1

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 will lead to a reduction in deadweight loss and therefore an increase in efficiency in the market for good X.
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 results in a higher price paid by consumers, and therefore to a reduction in economic surplus.
D) each type of price control results in a lower price received by sellers, and therefore to a reduction in economic surplus.
E) additional units of good X will be produced and consumed, leading to an increase in economic surplus.

Accepted Answer

The answer of Consider a competitive market for good X....

Question 2

FIGURE 5-4
-Refer to Figure 5-4. Suppose the government imposes a rent-controlled price of $600 per month on apartments in this city. In the long run we can expect the shortage of apartments to be units.
A) 0
B) 200
C) 300
D) 800
E) 1000

Accepted Answer

At a rent-controlled price of $600 per month, the quantity of apartments supplied will decrease to 200 units, while the quantity demanded will increase to 1,000 units. This results in a shortage of 800 units (1,000 – 200 = 800). This shortage is likely to persist in the long run as suppliers of rental units will not want to build new units or maintain existing units if they cannot charge market prices that cover their costs.

Question 3

If 10 000 snow tires are produced and purchased in the month of November, we can say that economic surplus is
A) the net value that society as a whole receives by producing and consuming those 10 000 snow tires.
B) the number of snow tires that are produced in excess of the equilibrium quantity.
C) the profit earned by the producers of those 10 000 snow tires.
D) the price at which the tires are sold multiplied by 10 000.
E) the net value to those consumers who purchased the 10 000 snow tires.

Accepted Answer

Economic surplus is the net value that society as a whole receives by producing and consuming a particular good or service. In this case, the production and purchase of 10 000 snow tires in November generates economic surplus as long as the benefits received by society exceed the costs. It takes into account both producer and consumer surplus. The other options do not accurately define economic surplus.

Question 4

Who are likely to be the biggest beneficiaries of rent controls?
A) landlords
B) prospective tenants
C) current tenants
D) construction companies
E) no group will benefit from the controls

Accepted Answer

Current tenants are the most likely to benefit from rent controls as they will be able to secure lower rents and potentially avoid being priced out of their homes. Landlords may be negatively impacted by rent controls as they may not be able to charge market rates for their properties, and construction companies may also be negatively impacted if landlords are not incentivized to invest in new property development due to the limitations imposed by rent controls. Prospective tenants may benefit in the short term, but in the long term, the lack of new development and limited supply may actually harm their chances of finding affordable housing.

Question 5

Consider a market that is in equilibrium with a market-clearing price. Economic surplus is shown by
A) the intersection of the supply and demand curves.
B) the area that is both below the demand curve and above the supply curve.
C) the area that is both above the demand curve and below the supply curve.
D) the area to the right of the market-clearing price and quantity.
E) the area below the supply curve up to the equilibrium quantity and below the demand curve beyond the equilibrium quantity.

Accepted Answer

Economic surplus is the total benefit received by all participants in a market, and it is measured by the difference between the willingness to pay and the cost of each unit of the good produced. The area below the demand curve and above the supply curve represents the total economic surplus generated in the market, as it includes the consumer surplus (area below the demand curve and above the market price) and the producer surplus (area above the supply curve and below the market price). Therefore, B is the best choice.

Question 6

FIGURE 5-4
-Refer to Figure 5-4. Suppose the government imposes a rent-controlled price of $600 per month on apartments in this city. In the short run we can expect the shortage of apartments to be units.
A) 0
B) 200
C) 300
D) 800
E) 1000

Accepted Answer

The answer of  FIGURE 5-4
-Refer to Figure 5-4. Suppose...

Question 7

The short-run supply for rental housing is quite while the long-run supply for housing is quite
)
A) elastic; inelastic
B) inelastic; elastic
C) flat; steep
D) inelastic; inelastic
E) elastic; elastic

Accepted Answer

In the short run, it is difficult for rental housing supply to respond to changes in demand due to factors like construction time and zoning regulations, making it inelastic. However, in the long run, supply can gradually adjust to changes in demand, making it more elastic. Therefore, the short-run supply for rental housing is inelastic, while the long-run supply is elastic.

Question 8

Suppose a downward-sloping demand curve intersects the horizontal axis at a point where quantity demanded equals 1250 units. What is the ʺvalueʺ that consumers place on the 1250th unit of this good?
A) a negative value
B) a positive value
C) $0
D) $1250
E) it depends on the position of the supply curve

Accepted Answer

Consumers are willing to buy 1250 units of the good at a price of $0, meaning they place no value on the 1250th unit. If the price were to be increased, they would demand less than 1250 units, indicating that the value they place on the 1250th unit must be less than zero.

Question 9

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

Accepted Answer

The answer of Each point on a supply curve shows...

Question 10

FIGURE 5-4
-Refer to Figure 5-4. The difference between supply curve S1 and supply curve S2 in this market for apartments is that
A) S1 is not affected by a government controlled rental price.
B) S2 is not affected by a government controlled rental price.
C) S1 is more elastic than S2.
D) S1 is a short-run supply curve and S2 is a long-run supply curve.
E) S1 is a long-run supply curve and S2 is a short-run supply curve.

Accepted Answer

In economics, short-run supply curves are typically less elastic than long-run supply curves because, in the long run, firms can adjust all inputs and enter or exit the market. Therefore, S1 being a short-run supply curve and S2 being a long-run supply curve explains the difference between them.

Question 11

FIGURE 5-4
-Refer to Figure 5-4. What is the significance of the difference in the slopes of the short-run supply curve S1) and the long-run supply curve S2) for apartments?
A) Over time, the supply of apartments shrinks in response to the controlled prices - the elasticity of supply decreases.
B) Over time, the demand for apartments shrinks in response to the controlled prices - the elasticity of supply increases.
C) Over time, the demand for apartments increases in response to the controlled prices - the elasticity of supply increases.
D) Over time, the supply of apartments increases in response to the controlled prices - the elasticity of demand increases.
E) Over time, the supply of apartments shrinks in response to the controlled prices - the elasticity of supply increases.

Accepted Answer

Over time, the supply of apartments becomes more elastic as landlords can adjust to controlled prices, leading to an increase in the elasticity of supply.

Question 12

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) 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.
B) The production and consumption of the additional 10 units of the good increases total economic surplus and increases market efficiency.
C) This market is efficient because economic surplus is maximized as production and consumption increase simultaneously.
D) This market is not efficient because quantity demanded for the good exceeds quantity supplied.
E) 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.

Accepted Answer

In a market with a negatively sloped demand curve, the value consumers place on each additional unit of the good decreases as quantity increases. If producers are producing and selling more than the market equilibrium quantity (in this case, 600 units), it means that the cost of producing these additional units is higher than the value consumers place on them. This leads to a deadweight loss and a reduction in market efficiency. Therefore, choice E is the correct answer.

Question 13

Consider the supply curve for a product such as shipping crates, which shows how many crates producers want to sell at each possible price. Alternatively, we could view this supply curve in the following way:
A) for each quantity of shipping crates, the supply curve shows the economic surplus generated by the provision of that ticket.
B) for each possible price, the supply curve shows the economic surplus generated by the provision of those crates.
C) for each quantity of shipping crates, the supply curve shows the extent of market inefficiency and deadweight loss.
D) for each quantity of shipping crates, the supply curve shows the value that consumers place on that particular crate.
E) for each quantity of shipping crates, the price on the supply curve shows the additional cost to the producer of supplying that crate.

Accepted Answer

The supply curve shows the additional cost to the producer of supplying each quantity of shipping crates. This means that as the quantity supplied increases, the marginal cost of production also increases, leading to a positively sloped supply curve.

Question 14

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

Accepted Answer

In the short run, changes in supply of rental housing are limited by existing rental stock and the time it takes to construct or convert new housing. In contrast, in the long run, investment decisions can be made and executed, leading to greater flexibility in the supply of rental housing. Therefore, the long-run elasticity of supply is greater than the short-run elasticity of supply.

Question 15

FIGURE 5-4
-Refer to Figure 5-4. Suppose the government sets a rent ceiling at $900. In this situation, the rental price for an apartment is
A) $600.
B) $900.
C) any rent above $900.
D) the same as the free-market equilibrium rental price.
E) any rent below $600.

Accepted Answer

The answer of  FIGURE 5-4
-Refer to Figure 5-4. Suppose...

Question 16

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 quantity of movie tickets, the price on the demand curve shows the value that consumers place on that particular movie ticket.
B) for each quantity of movie tickets, the demand curve shows the economic surplus generated by the purchase of the tickets.
C) for each possible price, 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 demand curve shows the additional cost to the producer of supplying that particular movie ticket.

Accepted Answer

The demand curve shows the value that consumers place on a particular movie ticket. It represents the maximum amount that an individual is willing to pay for a given quantity of tickets at a particular point in time. As the price of tickets increases, the quantity of tickets demanded decreases, showing how consumers trade off the value of the tickets with the cost of purchasing them.

Question 17

When economists describe a market for a specific product as being economically ʺefficient,ʺ what do they mean?
A) Production techniques are such that resources are used in the most technologically efficient manner.
B) Consumption of the product is such that economic surplus is maximized.
C) Production of the product is such that economic surplus is maximized.
D) The quantity of the product produced and consumed is such that the economic surplus is maximized.
E) There are no price controls in place in that market.

Accepted Answer

When economists describe a market as economically efficient, they mean that the quantity of the product produced and consumed is such that economic surplus is maximized. This occurs when the marginal benefit of consumption equals the marginal cost of production, resulting in no deadweight loss.

Question 18

Geoff is willing to pay $13 for a sixth entrance to a mountain bike park. The market price for entrance is $10.50. The bike park is willing to accept $8.75. The total economic surplus generated from Geoffʹs sixth trip to the bike park is
A) $1.75.
B) $2.50.
C) $13.00.
D) $10.50.
E) $4.25.

Accepted Answer

The answer of Geoff is willing to pay $13 for...

Question 19

FIGURE 5-5
-Refer to Figure 5-5. At the market-clearing price and quantity of $30 per hour and 4000 hours of gardening services purchased, the economic surplus is
A) the sum of the areas below the demand curve, but above the market-clearing price of $30 i.e., areas 1, 2, 6.
B) the sum of the areas below the demand curve i.e., areas 1, 2, 3, 4, 5, 6, 7, 8, 9.
C) the sum of the areas above the supply curve, but below the market-clearing price of $30 i.e., areas 3, 4, 7.
D) the sum of the areas above the supply curve and below the demand curve i.e., areas 1, 2, 3, 4, 6, 7.
E) the sum of the areas below the demand curve, up to 4000 hours i.e., areas 1, 2, 3, 4, 5, 6, 7, 8.

Accepted Answer

Economic surplus is the sum of the areas above the supply curve and below the demand curve. At the market-clearing price and quantity of $30 per hour and 4000 hours of gardening services purchased, the economic surplus is the sum of areas 1, 2, 3, 4, 6, and 7. These areas are above the supply curve and below the demand curve. Therefore, the best choice is D.

Question 20

Each point on a demand curve shows the price that consumers will pay to consume that quantity. The demand curve therefore shows the to consumers from consuming the product.
A) maximum; cost
B) minimum; cost
C) maximum; value
D) minimum; value
E) equilibrium; equilibrium price

Accepted Answer

The demand curve shows the maximum value that consumers place on consuming each quantity of the product. This is because consumers are willing to pay up to the price indicated on the demand curve for each unit consumed, which represents the value they place on the good.

Quiz 5: Price Controls and Market Efficiency

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

FIGURE 5-4 -Refer to Figure 5-4. Suppose the government imposes a rent-controlled price of $600 per month on apartments in this city. In the long run we can expect the shortage of apartments to be units.

If 10 000 snow tires are produced and purchased in the month of November, we can say that economic surplus is

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

Consider a market that is in equilibrium with a market-clearing price. Economic surplus is shown by

FIGURE 5-4 -Refer to Figure 5-4. Suppose the government imposes a rent-controlled price of $600 per month on apartments in this city. In the short run we can expect the shortage of apartments to be units.

The short-run supply for rental housing is quite while the long-run supply for housing is quite )

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

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.

FIGURE 5-4 -Refer to Figure 5-4. The difference between supply curve S1 and supply curve S2 in this market for apartments is that

FIGURE 5-4 -Refer to Figure 5-4. What is the significance of the difference in the slopes of the short-run supply curve S1) and the long-run supply curve S2) for apartments?

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?

Consider the supply curve for a product such as shipping crates, which shows how many crates producers want to sell at each possible price. Alternatively, we could view this supply curve in the following way:

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

FIGURE 5-4 -Refer to Figure 5-4. Suppose the government sets a rent ceiling at $900. In this situation, the rental price for an apartment is

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:

When economists describe a market for a specific product as being economically ʺefficient,ʺ what do they mean?

Geoff is willing to pay $13 for a sixth entrance to a mountain bike park. The market price for entrance is $10.50. The bike park is willing to accept $8.75. The total economic surplus generated from Geoffʹs sixth trip to the bike park is

FIGURE 5-5 -Refer to Figure 5-5. At the market-clearing price and quantity of $30 per hour and 4000 hours of gardening services purchased, the economic surplus is

Each point on a demand curve shows the price that consumers will pay to consume that quantity. The demand curve therefore shows the to consumers from consuming the product.