Question 1

Suppose the government imposes a price ceiling that is lower than the equilibrium price. Discuss the effect, if any, on the price and quantity if the government later removes the price ceiling.

Accepted Answer

The answer of Suppose the government imposes a price ceiling...

Question 2

In the housing market, if a rent ceiling of $600.00 is imposed when the equilibrium rent is $500.00, why will nothing change?

Accepted Answer

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Question 3

The Volumetric Ethanol Excise Tax Credit (VEETC) is a tax credit for registered ethanol-gasoline blenders. Qualified blenders receive $0.51 for each gallon of pure ethanol they blend into gasoline. VEETC is an example of a

Accepted Answer

The VEETC is a subsidy because it provides financial assistance to ethanol-gasoline blenders by giving them a tax credit for each gallon of ethanol blended, thereby encouraging the production and use of ethanol.

Question 4

The Volumetric Ethanol Excise Tax Credit (VEETC) is a tax credit (which acts like a subsidy) for registered ethanol-gasoline blenders. Qualified blenders receive $0.51 for each gallon of pure ethanol they blend into gasoline. What statement is TRUE?

Accepted Answer

A subsidy lowers the cost for producers, allowing them to sell at a lower price, which typically results in a lower price for consumers.

Question 5

Suppose that apartments rent for $1,300 a month in San Francisco, California and $850 a month in Los Angeles, California. If the state of California passes a state-wide rent ceiling for apartments of $1,100 a month, what occurs in the two cities?

Accepted Answer

The answer of Suppose that apartments rent for $1,300 a...

Question 6

The minimum wage in 2008 was $6.55 cents until July 2008 when it was raised to $7.25. If the minimum wage in June was below the equilibrium wage and the increased wage in July was above the equilibrium wage, then

Accepted Answer

When the minimum wage was below the equilibrium wage in June, it did not affect the market, and firms' producer surplus was maximized. In July, when the minimum wage was above the equilibrium wage, it created a surplus of labor (unemployment), reducing firms' producer surplus.

Question 7

Why do rent ceilings lead to shortages and black markets?

Accepted Answer

The answer of Why do rent ceilings lead to shortages...

Question 8

"The tax on insulin in the Philippines is anywhere between 10 and 20 percent. If you are rich and living in the Philippines, this is not a problem, but if you are poor, then insulin becomes something that you cannot afford." Why do buyers care so much about a tax on insulin, a vital daily medicine for those with diabetes?

Accepted Answer

Buyers care about the tax on insulin because the demand for insulin is almost perfectly inelastic, meaning that consumers will pay nearly the entire tax since they cannot easily reduce their consumption of this essential medication.

Question 9

"The tax on insulin in the Philippines is anywhere between 10 and 20 percent. If you are rich and living in the Philippines, this is not a problem, but if you are poor, then insulin becomes something that you cannot afford." If the government places the tax on sellers, what is the effect on the supply and demand curves?

Accepted Answer

When a tax is placed on sellers, it increases their costs, causing the supply curve to shift leftward. The demand curve remains unchanged as the tax does not directly affect consumers' willingness to buy.

Question 10

What are the effects of a rent ceiling set below the equilibrium rent?

Accepted Answer

The answer of What are the effects of a rent...

Question 11

Most of us are dependent on crude oil in some shape or way, whether it's to power our cars or to heat our homes in some parts of the country. More than 80 percent of the home heating oil used in the United States goes to the Northeast. It is suggested that there needs to be government regulation to make it illegal to charge a very high price for oil. This type of regulation would be a

Accepted Answer

A price ceiling is a government-imposed limit on how high a price can be charged for a product, in this case, oil.

Question 12

What are the major economic effects of rent ceilings?

Accepted Answer

The answer of What are the major economic effects of...

Question 13

One of the best defenses we have against malaria these days comes from a fern-like weed called wormwood. Fluctuating supply and demand have pushed the plant's price from $155 per kilo one year, to over $1000 the next. There is a push to set a price ceiling for the plant. Which of the following would NOT occur if there was a price ceiling set below the equilibrium price on wormwood?

Accepted Answer

A price ceiling set below the equilibrium price would lead to a shortage, potential black market, and increased inefficiency, but it would not make the market allocatively efficient.

Question 14

In order for a price ceiling to have an effect on the market, must it be set above or below the equilibrium price? Why?

Accepted Answer

The answer of In order for a price ceiling to...

Question 15

"The tax on insulin in the Philippines is anywhere between 10 and 20 percent. If you are rich and living in the Philippines, this is not a problem, but if you are poor, then insulin becomes something that you cannot afford." If the government places the tax on sellers, what is the most likely tax incidence?

Accepted Answer

When demand is inelastic, as it likely is for a necessary good like insulin, buyers tend to bear a larger share of the tax burden, even if the tax is levied on sellers.

Question 16

The federal minimum wage in 2010 was $7.25. If this wage rate was less than the equilibrium wage, what is the effect?

Accepted Answer

If the minimum wage is below the equilibrium wage, it does not affect the labor market, meaning it does not create unemployment or a surplus of labor.

Question 17

What is the difference between a rent ceiling set below the equilibrium rent and a rent ceiling set above the equilibrium rent?

Accepted Answer

The answer of What is the difference between a rent...

Question 18

Explain why in cities such as New York City that have rent ceiling laws, so many people who work in the city commute from outside the city.

Accepted Answer

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Question 19

More than 80 percent of the home heating oil used in the United States goes to the Northeast. In Vermont, the vast majority of people there use oil to stay warm when it's cold outside. Richard Izor heats his home with oil and inquires, "I'd like to see them come in and put a ceiling on the oil price now before it gets any higher. Why they haven't done this is more than I can understand." Which of the following is NOT likely to occur if such a price ceiling was imposed?

Accepted Answer

A price ceiling set below the equilibrium price typically leads to a shortage, not a surplus, as the quantity demanded exceeds the quantity supplied.

Question 20

In the 1980s, one of the most common sights in the socialist countries, such as the former Soviet Union and North Korea, were long lines for bread, sugar, and other necessities. These countries had price ceilings on these necessities. Some of the socialist nations, such as the former Soviet Union, have moved to a market economy by lifting the price ceilings, while others, such as North Korea, have retained their price ceilings. What prediction do you make about the presence (or absence) of long lines today in the former Soviet Union and North Korea? Explain your answer.

Accepted Answer

The answer of In the 1980s, one of the most...

Quiz 6: Government Actions in Markets