Question 1

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

A price floor is a minimum price set by the government that is above the equilibrium price. If the state of Minnesota established a price floor that was double the current market-clearing price for pumpkins, it would create a surplus of pumpkins as there would be more pumpkins supplied than demanded. This would result in an inefficient allocation of resources as some pumpkins would go unsold, causing a waste of resources and potential loss for pumpkin growers. Therefore, a price floor in this instance would lead to an inefficient number of pumpkins sold in Minnesota.

Question 2

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

Accepted Answer

Quantity controls are limits on the amount of a good that can be sold, such as quotas, whereas price ceilings and floors are limits on prices.

Question 3

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

Accepted Answer

The demand price refers to the price consumers are willing to pay for a certain quantity, while the supply price is the price at which producers are willing to supply that quantity.

Question 4

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

If the quota is set below the equilibrium quantity, it will reduce the supply of clams and increase their price. As a result, the demand price will be higher than the equilibrium price, not lower.

Question 5

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

Accepted Answer

This is true. The practice of issuing medallions to taxis began in the 1930s as a way to regulate and limit the number of taxis on the city's streets. Medallions continue to be used today as a way to control the taxi industry in New York City.

Question 6

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 license any position, including quarterbacks. The standards for aspiring quarterbacks are determined by their skills and abilities, as well as the demands and preferences of teams in the league.

Question 7

A price ceiling benefits all consumers.

Accepted Answer

Price ceilings may benefit some consumers who are able to purchase the limited quantity of the good or service at the lower price, but it can also lead to shortages, decreased quality, and black markets. It can also harm producers and reduce overall supply in the market. Therefore, not all consumers benefit from price ceilings.

Question 8

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

Setting price ceilings on drug manufacturers would likely lead to reduced incentives for research and development, resulting in lower quality drugs.

Question 9

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...

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

A quota set below the equilibrium quantity will restrict supply, leading to a higher price for consumers due to the reduced availability of clams.

Question 11

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

Accepted Answer

When airfares were set artificially high, airlines had to justify the high prices by offering customers an inefficiently high quality of service, including luxury amenities and larger seating arrangements.

Question 12

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

This statement is false. As of 2021, the average price of a New York taxicab medallion is around $150,000, which is still a significant decrease from their peak value in the early 2010s when they were sold for over $1 million.

Question 13

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 14

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

Accepted Answer

According to the NYC Taxi & Limousine Commission, as of 2021, there are only around 13,500 licensed taxicabs operating in New York City.

Question 15

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

Accepted Answer

A quota is a limit on the amount of a good that can be imported or exported, not a minimum.

Question 16

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

Accepted Answer

A quota defines a limit or restriction on the quantity or value of a particular product or commodity that can be imported or exported to or from a particular country. In this case, the quota is on the amount of foreign currency that people are allowed to buy.

Question 17

A binding minimum wage will generally cause increased unemployment for low-skilled workers.

Accepted Answer

A binding minimum wage set above the equilibrium wage can lead to a surplus of labor, as employers may hire fewer workers due to higher wage costs, resulting in increased unemployment among low-skilled workers.

Question 18

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 doctors' wages or control the market demand for their services, so it is unlikely that licensing has led to lower earnings over time. Other factors, such as changes in healthcare policy and insurance reimbursement rates, may have a greater impact on doctors' earnings.

Question 19

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 practice is known as export subsidies and is used to dispose of surplus agricultural products obtained as a result of price floors.

Question 20

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 price floor is set below the market-clearing price, it will have no effect on the market as the floor is not binding. It will not cause a surplus of cotton. A price floor only causes a surplus if it is set above the market-clearing price.

Quiz 5: Price Controls and Quotas: Meddling With Markets