Question 1

In a competitive market, a price ceiling set below the free- market equilibrium price will result in

Accepted Answer

A price ceiling set below the free-market equilibrium price will create a situation where the price is not high enough to cover the cost of production, thereby reducing the quantity supplied by suppliers. At the same time, consumers will demand more of the good because of the lower price. Therefore, the quantity demanded will exceed the quantity supplied, leading to a shortage in the market.

Question 2

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

Accepted Answer

A black-market transaction involves the buying and selling of goods or services at prices that are either above the government-imposed price ceiling or below the government-imposed price floor. Choice C is the only option where the transaction occurs above the price ceiling, making it an example of a black-market transaction.

Question 3

Suppose the demand for eggs is inelastic and that the market- clearing price is $1.50 per dozen. Now suppose the government imposes a minimum price of $2.00 per dozen. Why might the government implement such a policy?

Accepted Answer

The government might implement a minimum price policy of $2.00 per dozen to increase the incomes of egg farmers. Since the demand for eggs is inelastic, the government knows that consumers will continue to purchase eggs at this higher price, and therefore the increase in the price will go directly to the egg farmers, who may have been struggling to make a profit at the previous market-clearing price of $1.50 per dozen. This policy will not decrease excess supply in the egg market, make consumers better off, decrease tax revenues from egg farmers, or increase excess demand in the egg market.

Question 4

Suppose the government decides to eliminate a binding price floor that it had previously imposed on a particular good. It can be expected that

Accepted Answer

When a binding price floor is eliminated, it means that the government is no longer enforcing a minimum price on the good. Since the price will drop, it will be more affordable for consumers, increasing the quantity demanded. However, at the lower price, suppliers may not be willing to produce as much as before, leading to a decrease in the quantity supplied. Therefore, the price would decrease, the quantity demanded would increase and the quantity supplied would decrease.

Question 5

If an economist is conducting a partial- equilibrium analysis of the market for commuter jets, then he or she is

Accepted Answer

A partial-equilibrium analysis focuses on a specific market and assumes that all other markets and factors remain constant. Therefore, the economist conducting the analysis is assuming that the prices of all other goods are constant.

Question 6

Government price controls

Accepted Answer

Government price controls usually set upper or lower limits on prices, rather than ensuring transactions take place at a fair price or informing consumers what the maximum price should be. They may act as a guideline for producers, but their primary purpose is to regulate prices in some way. Price controls do not necessarily ensure that the actual price is at its free-market equilibrium, as they can distort the market and create shortages or surpluses.

Question 7

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

Accepted Answer

A binding minimum wage in a competitive labour market would result in an increase in the wage rate, which would increase the supply of labour from workers and reduce the demand from employers. This would create a surplus of labour, leading to unemployment.

Question 8

At any disequilibrium price, whether controlled or not, the quantity actually exchanged is determined by

Accepted Answer

At any disequilibrium price, there will either be excess demand or excess supply. The quantity actually exchanged will be determined by the lesser of the quantity demanded and quantity supplied, as this is the maximum amount that both consumers and producers are willing and able to exchange at that price.

Question 9

In a market where we observe a disequilibrium, quantity exchanged is determined

Accepted Answer

In a disequilibrium, the quantity exchanged in the market is determined by the lesser of quantity demanded and quantity supplied, as this represents the maximum amount that can be traded given the constraints of either demand or supply.

Question 10

A binding minimum wage established by the government

Accepted Answer

A binding minimum wage established by the government is a price floor. If the minimum wage is set above the equilibrium wage in a competitive labor market, it will create a surplus of workers (unemployment). Therefore, choice B is the most accurate answer. Choices A, C, and D are incorrect because they suggest that a minimum wage below or equal to the equilibrium wage, a price ceiling, or affecting only workers with higher productivity would not lead to unintended consequences. Choice E is also incorrect because a minimum wage that is above the equilibrium wage will decrease the quantity of labor demanded by firms.

Question 11

An excess demand for some product is the same thing as

Accepted Answer

An excess demand for some product is when the quantity of the product demanded by buyers exceeds the quantity supplied by sellers at the current market price. This creates a shortage, which means the market is unable to supply enough of the product to meet the demand.

Question 12

A predictable result of the imposition of binding price floors or price ceilings is

Accepted Answer

The answer of A predictable result of the imposition of...

Question 13

Consider the following demand and supply schedules for some agricultural commodity. $$\begin{array}{l}
\begin{array} { | l | l | l | } 
\hline \text { Price } & \begin{array} { l } 
\text { Quantity } \
\text { Supplied }
\end{array} & \begin{array} { l } 
\text { Quantity } \
\text { Demanded }
\end{array} \
\hline \$ 10 & 300 & 1100 \
\hline \$ 30 & 500 & 900 \
\hline \$ 50 & 700 & 700 \
\hline \$ 70 & 900 & 500 \
\hline \$ 90 & 1100 & 300 \
\hline \$ 110 & 1300 & 100 \
\hline
\end{array}\
\text { TABLE 5- } 2
\end{array}$$
-Refer to Table 5- 2. Suppose we begin in a free- market equilibrium. If the government then imposes a production quota of 500 units, total farmers' income

Accepted Answer

The answer of Consider the following demand and supply schedules...

Question 14

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

Accepted Answer

The answer of Consider the following demand and supply schedules...

Question 15

Consider the following demand and supply schedules for some agricultural commodity. $$\begin{array}{l}
\begin{array} { | l | l | l | } 
\hline \text { Price } & \begin{array} { l } 
\text { Quantity } \
\text { Supplied }
\end{array} & \begin{array} { l } 
\text { Quantity } \
\text { Demanded }
\end{array} \
\hline \$ 10 & 300 & 1100 \
\hline \$ 30 & 500 & 900 \
\hline \$ 50 & 700 & 700 \
\hline \$ 70 & 900 & 500 \
\hline \$ 90 & 1100 & 300 \
\hline \$ 110 & 1300 & 100 \
\hline
\end{array}\
\text { TABLE 5- } 2
\end{array}$$
-Refer to Table 5- 2. Consider the market- clearing equilibrium. If the government then imposes a production quota of 500 units, the price of this commodity will relative to the free- market equilibrium price.

Accepted Answer

The answer of Consider the following demand and supply schedules...

Question 16

FIGURE 5- 1
-Refer to Figure 5- 1. If the diagram applies to the labour market, and P3 represents a legislated minimum wage,

Accepted Answer

The answer of  FIGURE 5- 1
-Refer to Figure 5-...

Question 17

Consider the Canadian market for barley. Suppose a marketing board sets a production quota which is below the equilibrium quantity. The quota will cause the price of barley to and the total revenue earned by Canadian barley farmers to .

Accepted Answer

When a production quota is set below the equilibrium quantity, the supply decreases, leading to a higher price. If demand is inelastic, the percentage change in quantity demanded is less than the percentage change in price, causing total revenue to rise.

Question 18

An excess supply of some product is the same thing as

Accepted Answer

An excess supply of a product means that there is more of the product in the market than there is demand for it, resulting in a surplus. Therefore, choice D – a surplus – is the correct answer. Scarcity (choice A) and a shortage (choice B) are the opposite of excess supply. A price floor (choice C) is a government-imposed minimum price, which can create a surplus if the floor is set above the equilibrium price. Excess demand (choice E) would be the opposite of excess supply, where there is more demand for a product than there is supply.

Question 19

$\text { Demand and Supply Schedules for Chocolate Bars }$
$\begin{array}{|c|c|c|}
\hline \begin{array}{c}
\text { Price } \
(\$)
\end{array} & \begin{array}{c}
\text { Quantity Demanded } \
\text { (thousandsperweek) }
\end{array} & \begin{array}{c}
\text { Quantity Supplied } \
\text { (thousands per week) }
\end{array} \
\hline 2.00 & 1500 & 2100 \
\hline 1.80 & 1600 & 2050 \
\hline 1.60 & 1700 & 2000 \
\hline 1.40 & 1800 & 1950 \
\hline 1.20 & 1900 & 1900 \
\hline 1.00 & 2000 & 1850 \
\hline 0.80 & 2100 & 1800 \
\hline 0.60 & 2200 & 1750 \
\hline 0.40 & 2300 & 1700 \
\hline
\end{array}$
$\text { TABLE 5-1 }$
-Refer to Table 5- 1. Suppose the government imposed a price of $1.80 per chocolate bar. A likely result from this policy is

Accepted Answer

At a price of $1.80, the quantity supplied (2050) exceeds the quantity demanded (1600), leading to a surplus and unsold inventories.

Question 20

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

Accepted Answer

Current tenants are likely to benefit from rent controls as they can enjoy lower rent prices and increased housing stability.

Quiz 5: Markets in Action

In a competitive market, a price ceiling set below the free- market equilibrium price will result in

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

Suppose the demand for eggs is inelastic and that the market- clearing price is $1.50 per dozen. Now suppose the government imposes a minimum price of $2.00 per dozen. Why might the government implement such a policy?

Suppose the government decides to eliminate a binding price floor that it had previously imposed on a particular good. It can be expected that

If an economist is conducting a partial- equilibrium analysis of the market for commuter jets, then he or she is

Government price controls

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

At any disequilibrium price, whether controlled or not, the quantity actually exchanged is determined by

In a market where we observe a disequilibrium, quantity exchanged is determined

A binding minimum wage established by the government

An excess demand for some product is the same thing as

A predictable result of the imposition of binding price floors or price ceilings is

FIGURE 5- 1 -Refer to Figure 5- 1. If the diagram applies to the labour market, and P3 represents a legislated minimum wage,

Consider the Canadian market for barley. Suppose a marketing board sets a production quota which is below the equilibrium quantity. The quota will cause the price of barley to and the total revenue earned by Canadian barley farmers to .

An excess supply of some product is the same thing as

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