Question 1

Although they cost more than $200,000 when they were issued in the 1930s, the New York taxicab medallions are relatively inexpensive today, selling for around $3,000.

Accepted Answer

The statement is false. As of 2021, the current price of a New York taxicab medallion is around $150,000, according to the New York City Taxi and Limousine Commission.

Question 2

A quota is the minimum amount of some good that can be bought and sold in the market.

Accepted Answer

A quota is a government-imposed restriction on the quantity of a good that can be produced, imported or exported, and may limit the amount of the good that can be sold or bought in a market. It is not the minimum amount that can be bought and sold in the market.

Question 3

Quotas, price ceilings, and price floors are all types of quantity controls that the government may impose.

Accepted Answer

Quotas are a type of quantity control, but price ceilings and price floors are types of price controls, not quantity controls.

Question 4

Suppose the state of Mississippi sets a price floor in the market for cotton. If the floor is set below the market-clearing price of cotton, the floor will cause a surplus of cotton.

Accepted Answer

If the floor is set below the market-clearing price of cotton, it will have no effect on the market as the floor price will be lower than the equilibrium price and market will continue to function as before without any surplus.

Question 5

In New York City there are more than 100,000 licensed taxicabs.

Accepted Answer

According to the New York City Taxi and Limousine Commission, as of 2021 there are only about 13,500 licensed taxicabs in New York City.

Question 6

If the demand curve for clams is downward sloping and the supply curve is upward sloping, a quota that is set above the equilibrium quantity will have no immediate effect on the market.

Accepted Answer

If the quota is set above the equilibrium quantity, it will not affect the market as the market was already at the equilibrium point. However, if the quota was set below the equilibrium quantity, it would result in a shortage of clams, leading to an increase in price and a decrease in quantity demanded. Conversely, if the quota was set above the equilibrium quantity, it would result in a surplus of clams, leading to a decrease in price and an increase in quantity demanded, until the market reaches a new equilibrium.

Question 7

Quantity controls usually take the form of price ceilings or price floors established by the government.

Accepted Answer

Quantity controls, such as quotas, directly limit the amount of a good that can be bought or sold, rather than setting price ceilings or floors which indirectly affect quantity through price restrictions.

Question 8

A limit on the amount of a foreign currency people are allowed to buy is an example of a quota.

Accepted Answer

A quota is a numerical limit on the amount of a certain good or service that can be imported or exported. In the case of foreign currency, a limit on the amount people can buy would be a quota.

Question 9

To dispose of the unwanted surplus resulting from agricultural price floors, the European Union pays exporters to sell products at a loss overseas.

Accepted Answer

This is known as export subsidies, which is a common practice used by the EU to dispose of surplus agricultural products resulting from price floors. This leads to the products being sold at a price lower than what they cost to produce.

Question 10

If the demand curve for clams is downward sloping, a quota that is set below the equilibrium quantity will decrease the price that consumers pay for clams.

Accepted Answer

If the quota is set below the equilibrium quantity, it will limit the supply of clams available in the market, which will cause the price of clams to increase due to the scarcity. Therefore, the price that consumers pay for clams will not decrease, instead, it may go up.

Question 11

If the state of Minnesota established a price floor in the market for pumpkins that was double the current market-clearing price, this would lead to an inefficient number of pumpkins sold in Minnesota.

Accepted Answer

Setting a price floor above the market-clearing price would result in a surplus of pumpkins, as suppliers would be willing to sell more pumpkins than consumers would want to buy at the higher price. This surplus would lead to inefficiencies such as wasted resources and lost potential gains from trade.

Question 12

The demand price of a given quantity of doughnuts is the price at which consumers will demand that quantity. The supply price for a given quantity is the price at which doughnut producers will supply that quantity.

Accepted Answer

This is the correct definition of demand price and supply price.

Question 13

The National Football League does not license quarterbacks. This means that the free market determines the standards that an aspiring quarterback must achieve.

Accepted Answer

The NFL does not issue licenses for any position, including quarterbacks. Standards for quarterbacks are set by teams and the league through scouting, drafting, and contractual negotiations.

Question 14

The American Medical Association licenses doctors. This licensing has probably led to lower earnings for doctors over time.

Accepted Answer

The American Medical Association does not set the salaries or earnings of doctors. Licensing ensures that doctors meet certain standards of education and training, which may actually help increase their earnings potential.

Question 15

Critics of the pharmaceutical industry often argue that price ceilings should be imposed on drug manufacturers. If this happened, the quality of drugs would improve.

Accepted Answer

Imposing price ceilings on drug manufacturers could lead to a decrease in their revenue and profit margins, which may discourage them from investing in research and development of new drugs or improving the quality of their existing products. It could also lead to shortages of certain drugs if manufacturers are not able to cover their costs. Therefore, it is not necessarily true that the quality of drugs would improve if price ceilings were imposed.

Question 16

Licenses allowing taxis to operate issued by New York City in the 1930s are called medallions.

Accepted Answer

This statement is true. Licenses issued by New York City allowing taxis to operate are referred to as medallions, and have been in use since the 1930s.

Question 17

When transatlantic airfares were set artificially high by an international treaty, airlines offered customers an inefficiently high quality of service.

Accepted Answer

When prices are kept artificially high, suppliers tend to offer high quality service and amenities to justify the high prices and differentiate themselves from competitors. This is known as the "quality effect" of price discrimination.

Question 18

Economic models predict that a binding minimum wage will generally cause increased unemployment for low-skilled workers.

Accepted Answer

Economic models generally suggest that a binding minimum wage would increase the cost of labor for employers, making it more expensive to hire low-skilled workers. This could lead to reduced demand for low-skilled labor and increased unemployment among these workers. However, the actual impact of a minimum wage hike on employment levels can vary depending on factors such as the size of the increase, the competitiveness of the labor market, and the elasticity of labor demand.

Question 19

If the demand curve for clams is downward sloping, a quota that is set below the equilibrium quantity will result in a demand price that is lower than the equilibrium price.

Accepted Answer

Setting a quota below the equilibrium quantity will result in a shortage and a higher demand price, not a lower one.

Question 20

If the supply curve for clams is upward sloping, a quota that is set below the equilibrium quantity will result in a supply price that is lower than the equilibrium price.

Accepted Answer

The answer of If the supply curve for clams is...

Quiz 4: Price Controls and Quotas: Meddling With Markets