Question 1

In January, the government passed the Affordable Housing Act. This law is designed to help low-income Americans by establishing a maximum amount a household can pay in rent in cities with populations over 500,000.

Accepted Answer

By establishing a maximum amount that households can pay in rent, the law sets a price ceiling. This may lead to a shortage of rental units as landlords may not be willing or able to provide housing at that price.

Question 2

A rent control usually sets a price ceiling that is below the equilibrium price and thus:

Accepted Answer

A rent control that sets a price ceiling below the equilibrium price creates an excess demand or a shortage, as the quantity demanded exceeds the quantity supplied. This results in a long waiting list for rental housing, and landlords may stop investing in new properties or maintaining existing ones as they cannot make a profit under the price ceiling.

Question 3

(Table: Market for Milk) Use Table: Market for Milk. If the government imposes a price ceiling of $0.90 per pound of milk, the quantity of milk actually purchased will be _____ million pounds.

Accepted Answer

A price ceiling of $0.90 is below the equilibrium price of $1.00, so there will be excess demand. The quantity demanded at this price will be 9 million pounds, which is below the quantity supplied of 10.5 million pounds. Therefore, the quantity of milk actually purchased will be 9 million pounds.

Question 4

(Figure: Supply and Demand in the Market for Cappuccinos) Use Figure: Supply and Demand in the Market for Cappuccinos. A price ceiling of $6 causes:

Accepted Answer

The answer of (Figure: Supply and Demand in the Market...

Question 5

(Figure: Supply and Demand in the Market for Cappuccinos) Use Figure: Supply and Demand in the Market for Cappuccinos. A price ceiling of $4 causes:

Accepted Answer

A price ceiling of $4 is below the equilibrium price in the market for cappuccinos, causing a shortage of quantity demanded (Qd) and quantity supplied (Qs). The distance DE represents the quantity of cappuccinos demanded at a price of $4, and the distance EF represents the quantity of cappuccinos supplied at that price. Since Qd < Qs at a price of $4, there is a shortage equal to the distance DE. Therefore, choice C is the correct answer.

Question 6

(Figure: Supply and Demand in the Market for Cappuccinos) Use Figure: Supply and Demand in the Market for Cappuccinos. A binding price ceiling is represented by:

Accepted Answer

A binding price ceiling is a price control that sets a maximum legal price that can be charged for a product or service, and it is binding when it is below the market equilibrium price. In the given figure, the equilibrium price is $5 and the binding price ceiling is represented by the horizontal dashed line at a price of $4. At this price, the quantity demanded exceeds the quantity supplied, creating a shortage. Therefore, choice C (a price of $4) is the correct answer.

Question 7

The New York Philharmonic wants to make sure that its concerts are affordable for all residents of and visitors to New York City and therefore prices all of its tickets at $75. However, outside Lincoln Center, people can sell the same tickets for $250 or more. The true cost to the concertgoer of a ticket to the symphony is at least:

Accepted Answer

The true cost to the concertgoer can be at least $250, as tickets are being resold for this amount or more outside Lincoln Center, indicating the market value or the price people are willing to pay.

Question 8

(Table: The Market for Kombucha) Use Table: The Market for Kombucha. The table shows the quantity demanded (Qd) and quantity supplied (Qs) of kombucha at various prices. (Table: The Market for Kombucha) Use Table: The Market for Kombucha. If the government imposes a price floor of $3 per bottle of kombucha, there will be:

Accepted Answer

A price floor is above the equilibrium price of $2.50, so it will create a surplus of kombucha. At a price of $3 per bottle, suppliers are willing to supply 11 bottles of kombucha, but consumers are only willing to buy 8 bottles. This creates a surplus of 3 bottles (Qs - Qd = 11 - 8 = 3).

Question 9

(Table: Market for Milk) Use Figure: Market for Milk. If the government imposes a price floor of $0.90 per gallon of milk, the quantity of milk actually purchased will be _____ gallons per week.

Accepted Answer

The answer of (Table: Market for Milk) Use Figure: Market...

Question 10

(Table: Market for Milk) Use Figure: Market for Milk. If the government imposes a price floor of $1.20 per gallon of milk, the quantity of milk actually purchased will be _____ gallons per week.

Accepted Answer

The answer of (Table: Market for Milk) Use Figure: Market...

Question 11

Suppose the government sets a price floor of $4.85 per bushel of wheat when the equilibrium price is $4.55 per bushel. This price floor will:

Accepted Answer

A price floor above the equilibrium price creates a surplus, as the quantity supplied exceeds the quantity demanded at that higher price. Therefore, a price floor of $4.85 per bushel of wheat will cause a surplus of wheat.

Question 12

(Figure: The Market for Milk) Use Figure: The Market for Milk. If a government price floor of $1.30 is imposed on this market, inefficiency will result in the form of a _____ of _____ gallons of milk.

Accepted Answer

When the price floor is set at $1.30, it is above the equilibrium price of $1.20. This will cause a surplus of milk as the quantity supplied (12 billion gallons) will exceed the quantity demanded (6 billion gallons) by 6 billion gallons. Therefore, the correct choice is B, surplus of 6.0 gallons of milk.

Question 13

(Figure: The Market for Milk) Use Figure: The Market for Milk. If a government price floor of $1.20 is imposed on this market, inefficiency will result in the form of a _____ of _____ gallons of milk.

Accepted Answer

The answer of (Figure: The Market for Milk) Use Figure:...

Question 14

Suppose the government sets a price floor that is below the equilibrium price of a good. The price floor will:

Accepted Answer

Since the price floor is below the equilibrium price, it will have no immediate effect on the price of the good. The market will continue to operate at the equilibrium price and quantity. However, if the price floor is enforced, it will create a situation where producers may want to supply more of the good than consumers are willing to buy, leading to a surplus.

Question 15

Suppose the government sets a price floor that is above the equilibrium price of a good. The price floor will:

Accepted Answer

When the government sets a price floor above the equilibrium price, it creates a situation where suppliers are willing to supply more of the good than consumers are willing to buy at the higher price, resulting in a surplus of the good. This is because the price floor creates a higher price, which decreases demand and increases supply. Therefore, choice A is correct.

Question 16

(Figure: The Alaskan Crab Market) Use Figure: The Alaskan Crab Market. If the government wants to limit crab sales to 500 pounds, it can impose a price:

Accepted Answer

The answer of (Figure: The Alaskan Crab Market) Use Figure:...

Question 17

(Figure: The Market for Statistics Textbooks) Use Figure: The Market for Statistics Textbooks. With a binding price floor at $180, the market outcome would be a _____ of _____ textbooks.

Accepted Answer

The answer of (Figure: The Market for Statistics Textbooks) Use...

Question 18

(Figure: The Market for Milk) Use Figure: The Market for Milk. With a binding price floor, the price could be equal to _____, consumers would demand _____, and producers would supply _____.

Accepted Answer

The answer of (Figure: The Market for Milk) Use Figure:...

Question 19

(Figure: The Market for Almond Milk) Use Figure: The Market for Almond Milk. With a nonbinding price floor, the price could be equal to _____, consumers would demand _____, and producers would supply _____.

Accepted Answer

The answer of (Figure: The Market for Almond Milk) Use...

Question 20

(Figure: The Market for Accounting Textbooks) Use Figure: The Market for Accounting Textbooks. Suppose the government believes the producers of accounting textbooks are not profitable, and it wants to make sure textbook producers are profitable. It could impose a control called a price _____, and for it to be binding, one possible price would be _____.

Accepted Answer

To ensure producers of accounting textbooks are profitable, the government would want to impose a price floor above the current market equilibrium price. Based on the graph, the current equilibrium price is around $80, so a binding price floor would need to be set above this price. Option A) suggests a price floor of $180, which is well above the current equilibrium price and would likely result in textbook producers receiving higher profits. Therefore, A) is the best choice.

Quiz 6: When Governments Intervene in Markets