Question 1

A price ceiling is a legally determined maximum price that sellers may charge.

Accepted Answer

A price ceiling sets a limit on the price that can be charged for a certain product or service, and is typically put in place by the government to protect consumers from high prices.

Question 2

Figure 4-7
 
-Refer to Figure 4-7 which shows the market for vitamins.Suppose the government imposes a price ceiling of Pᵥ.How will the price ceiling affect the quantity supplied, quantity demanded, and quantity exchanged?

Accepted Answer

The answer of Figure 4-7
 
-Refer to Figure 4-7 which...

Question 3

When Airbnb customers in Malibu start paying hotel taxes, this will have the potential to raise the equilibrium price in this market and, therefore, decrease efficiency.This would have a tendency to

Accepted Answer

When the equilibrium price in a market increases due to the introduction of taxes, consumers will face a higher price and will purchase less. This will result in a decrease in consumer surplus, as they are willing to pay a certain amount for the service but now have to pay more. This decrease in demand will also result in a decrease in producer surplus, as sellers will have to sell less at a lower price. The introduction of taxes can also create deadweight loss, which is a loss of economic efficiency in the market. Therefore, the best choice is B, which describes a decrease in consumer surplus and an increase in deadweight loss.

Question 4

Suppose a price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia.What will be the likely effect on the market for sparkling wine in Vinyardia?

Accepted Answer

A price floor set above the equilibrium price will lead to a surplus of sparkling wine, as the quantity supplied will exceed the quantity demanded. This results in a deadweight loss, as the market is not operating efficiently, and both consumer and producer surplus are reduced.

Question 5

What is a black market?

Accepted Answer

The answer of What is a black market?...

Question 6

What is the difference between scarcity and a shortage?

Accepted Answer

The answer of What is the difference between scarcity and...

Question 7

Table 4-5
  
Table 4-5 above contains information about the corn market.Answer the following questions based on this table.
-Refer to Table 4-5.An agricultural price floor is a price that the government guarantees farmers will receive for a particular crop.Suppose the federal government sets a price floor for corn at $12 per bushel.
a.What is the amount of shortage or surplus in the corn market as result of the price floor?
b.If the government agrees to purchase any surplus output at $12, how much will it cost the government?
c.If the government buys all of the farmers' output at the floor price, how many bushels of corn will it have to purchase and how much will it cost the government?
d.Suppose the government buys up all of the farmers' output at the floor price and then sells the output to consumers at whatever price it can get.Under this scheme, what is the price at which the government will be able to sell off all of the output it had purchased from farmers? What is the revenue received from the government's sale?
e.In this problem we have considered two government schemes: (1)a price floor is established and the government purchases any excess output and (2)the government buys all the farmers' output at the floor price and resells at whatever price it can get.Which scheme will taxpayers prefer?
f.Consider again the two schemes.Which scheme will the farmers prefer?
g.Consider again the two schemes.Which scheme will corn buyers prefer?

Accepted Answer

The answer of Table 4-5
  
Table 4-5 above contains...

Question 8

Economists are reluctant to state that price controls are desirable or undesirable because

Accepted Answer

Economists are concerned with analyzing the impact of policies on the economy, but they cannot determine whether a particular policy is desirable or undesirable because it involves value judgments beyond the economic analysis. Therefore, the decision of whether price controls are desirable or undesirable due to the distributional implications of such policies, which is not strictly an economic question, must be made by policymakers and society as a whole.

Question 9

What is the difference between a price ceiling and a price floor? Compared to the competitive equilibrium price, where must price ceilings and price floors be set to have an effect on the market.

Accepted Answer

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

Question 10

In cities with rent controls, the actual rents paid can be higher than the legal maximum.One explanation for this is

Accepted Answer

Rent controls create a shortage of apartments, as landlords have little incentive to build or maintain rental properties if they cannot earn a fair return on their investment. As a result, tenants may be willing to pay more than the legal maximum in order to secure a desirable apartment in a desirable location. Landlords may also be able to charge higher rents for apartments that are exempt from rent control laws, such as those in newer buildings or those that have recently undergone renovation.

Question 11

Price ceilings are illegal in the United States.

Accepted Answer

Price ceilings are not illegal in the United States, but they are regulated and must be set at a level that does not create market inefficiencies.

Question 12

The actual division of the burden of a tax between buyers and sellers in a market is called

Accepted Answer

Tax incidence refers to who actually bears the burden of a tax, whether it be the buyer or the seller. The other choices (tax liability, tax bearer, and tax parity) do not specifically refer to the division of the burden of a tax between buyers and sellers.

Question 13

Shortage means the same thing as scarcity.

Accepted Answer

The answer of Shortage means the same thing as scarcity....

Question 14

Rent control is an example of a price ceiling.

Accepted Answer

Rent control places a legal maximum on the price that landlords can charge for rental units, which is a classic example of a price ceiling.

Question 15

By charging the equilibrium price for shared rides as opposed to the government-regulated price charged by traditional taxi companies, Uber has

Accepted Answer

By charging the equilibrium price, Uber has increased consumer surplus. This is because consumers are willing to pay more for a ride with Uber than they would for a traditional taxi, meaning they receive a larger benefit from the service. Additionally, Uber's pricing model often leads to lower overall prices for rides, which further increases consumer surplus. There is no evidence to suggest that Uber's pricing has significantly altered deadweight loss or producer surplus.

Question 16

The minimum wage is an example of a price ceiling.

Accepted Answer

The answer of The minimum wage is an example of...

Question 17

Black markets only exist in developing nations.

Accepted Answer

Black markets can exist in any country, regardless of its level of development. They usually arise when there is a demand for goods or services that are either illegal or not readily available through normal channels.

Question 18

Which of the following is not a result of government price controls?

Accepted Answer

This statement is not entirely accurate. While price controls may benefit some poor consumers, they can also harm them by creating shortages and reducing the overall quality of goods and services. Additionally, price controls can have negative effects on the economy as a whole, such as decreasing economic efficiency and creating deadweight loss. Therefore, option B is not a correct result of government price controls.

Question 19

Suppose a price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia.What will be the likely effect on the market for sparkling wine in Vinyardia?

Accepted Answer

A price floor set above the equilibrium price will lead to a decrease in quantity demanded and an increase in quantity supplied, resulting in a surplus.

Question 20

The cities of Francistown and Nalady are five miles apart.Francistown enacts a rent control
law that puts a ceiling on rents well below their equilibrium market value.Predict the impact of this law on the competitive equilibrium rent in Nalady, which does not have a rent control law.
a.Illustrate your answer with one demand and supply graph for the apartment market in Francistown and another demand and supply graph for the apartment market in Nalady.
b.Make sure that your graphs clearly show (1)the initial equilibrium before the rent control in both markets and (2)what happens after the imposition of rent control.
c.Clearly show any shifts in the demand or supply curves, and the movement along the curves for each market.
d.Label your graphs fully and provide written explanation for your graphs.

Accepted Answer

The answer of The cities of Francistown and Nalady are...

Quiz 4: Economic Efficiency, Government Price Setting, and Taxes

A price ceiling is a legally determined maximum price that sellers may charge.

Figure 4-7 -Refer to Figure 4-7 which shows the market for vitamins.Suppose the government imposes a price ceiling of Pᵥ.How will the price ceiling affect the quantity supplied, quantity demanded, and quantity exchanged?

When Airbnb customers in Malibu start paying hotel taxes, this will have the potential to raise the equilibrium price in this market and, therefore, decrease efficiency.This would have a tendency to

Suppose a price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia.What will be the likely effect on the market for sparkling wine in Vinyardia?

What is a black market?

What is the difference between scarcity and a shortage?

Economists are reluctant to state that price controls are desirable or undesirable because

What is the difference between a price ceiling and a price floor? Compared to the competitive equilibrium price, where must price ceilings and price floors be set to have an effect on the market.

In cities with rent controls, the actual rents paid can be higher than the legal maximum.One explanation for this is

Price ceilings are illegal in the United States.

The actual division of the burden of a tax between buyers and sellers in a market is called

Shortage means the same thing as scarcity.

Rent control is an example of a price ceiling.

By charging the equilibrium price for shared rides as opposed to the government-regulated price charged by traditional taxi companies, Uber has

The minimum wage is an example of a price ceiling.

Black markets only exist in developing nations.

Which of the following is not a result of government price controls?

Suppose a price floor on sparkling wine is proposed by the Health Minister of the country of Vinyardia.What will be the likely effect on the market for sparkling wine in Vinyardia?