Question 1

Which of the following is true?
A)It is possible to eliminate a surplus by raising a price floor sufficiently.
B)It is possible to create a surplus by raising a price ceiling sufficiently.
C)It is possible to eliminate a shortage by raising a price ceiling sufficiently.
D)It is possible to create a shortage by lowering a price floor sufficiently.
E)All of the above are true.

Accepted Answer

Raising a price ceiling allows prices to rise, which can eliminate a shortage by allowing supply to meet demand.

Question 2

To the extent that a governmental price control succeeds in affecting price, it can be expected to lead to a corresponding:
A)reduction in the volume of sales only if the price is forced down.
B)reduction in the volume of sales if the price is forced down and an increase in the volume of sales if the price is forced up.
C)decrease in the volume of sales whether the price is forced up or down.
D)increase in the volume of sales whether the price is forced up or down.

Accepted Answer

Whenever a governmental price control is implemented, it creates a discrepancy between the supply and demand of the goods or services in question. This results in either a surplus or a shortage, which ultimately leads to a decrease in the volume of sales. Therefore, a decrease in the volume of sales can be expected whether the price is forced up or down.

Question 3

"Rent Control," a form of price control in which the government sets a limit to what apartment owners can charge a tenant, is a mechanism of:
A)cost cutting.
B)price ceiling.
C)price floor.
D)non-equilibrium pricing.

Accepted Answer

Rent control is a type of price control in which the government sets a maximum price (ceiling) that apartment owners can charge their tenants. This is designed to help make housing more affordable for low-income individuals and families. However, it can also have unintended consequences, such as a reduction in the quantity and quality of available housing and an increase in black market or underground housing transactions.

Question 4

Whenever a price ceiling is imposed in a market, it is true that:
A)quantity demanded exceeds quantity supplied and a surplus results.
B)quantity demanded exceeds quantity supplied and a shortage results.
C)quantity supplied exceeds quantity demanded and a surplus results.
D)quantity supplied exceeds quantity demanded and a shortage results.
E)it is necessary to know whether the ceiling is imposed above or below the equilibrium price in order to determine whether the quantity traded will be affected.

Accepted Answer

The answer of Whenever a price ceiling is imposed in...

Question 5

If the supply curve for housing has the normal positive slope, rent controls are likely to:
A)increase the quantity of available housing.
B)improve the quality of available housing.
C)create a larger shortage than if the supply curve were vertical.
D)help low-income families find suitable housing.
E)increase the demand for housing.

Accepted Answer

If the supply curve for housing has a normal positive slope, rent controls will create a shortage of housing because they prevent the market from reaching equilibrium. With a price ceiling, the quantity of housing supplied will be less than the quantity demanded, leading to a shortage. If the supply curve were vertical, there would be no change in quantity supplied and the shortage would be smaller. Rent controls do not necessarily increase the quantity or improve the quality of available housing, and they may discourage construction and investment, leading to a further decrease in the quantity and quality of available housing. Rent controls may help low-income families find housing, but they may also reduce mobility and discourage investment in affordable housing by making it less profitable. Rent controls do not increase the demand for housing, as demand is determined by the willingness and ability of consumers to pay for housing at different prices.

Question 6

Which of the below is true?
A)A price ceiling reduces the quantity exchanged on the market, but a price floor increases the quantity exchanged on the market.
B)A price ceiling increases the quantity exchanged on the market, but a price floor decreases the quantity exchanged on the market.
C)Both price floors and price ceilings reduce the quantity exchanged in the market.
D)Both price floors and price ceilings increase the quantity exchanged in the market.

Accepted Answer

Both price floors and price ceilings impose artificial constraints on the price mechanism, leading to inefficient outcomes. A price floor sets a minimum price above the market equilibrium price, leading to excess supply and a reduction in the quantity demanded. A price ceiling sets a maximum price below the market equilibrium price, leading to excess demand and a reduction in the quantity supplied. In both cases, the quantity exchanged in the market is reduced.

Question 7

The imposition of a price ceiling on a market often results in:
A)an increase in investment in the industry.
B)a surplus.
C)a shortage.
D)a decrease in discrimination on the part of sellers.
E)none of the above.

Accepted Answer

When a price ceiling is imposed below the market equilibrium price, it creates excess demand or a shortage, as consumers demand more than what suppliers are willing to supply at the lower price. As a result, some sellers may leave the market, reducing the overall market supply, and consumers may resort to non-price rationing methods such as queuing or discrimination based on non-price factors such as race or gender. The other options are not typically associated with price ceilings.

Question 8

Suppose the equilibrium price of bread is $2.00 per loaf.If the government sets a price ceiling of $1.50 per loaf:
A)the equilibrium price of wheat will fall and a shortage of wheat will be created.
B)the quantity of wheat supplied will increase.
C)the quantity of wheat demanded will decrease.
D)there will be a shortage of bread.
E)there will be a surplus of bread.

Accepted Answer

When the government sets a price ceiling of $1.50 per loaf, it is below the equilibrium price of $2.00. As a result, there will be excess demand for bread at the lower price, leading to a shortage of bread. This is because the quantity supplied will be less than the quantity demanded at the price ceiling. Thus, choice D is the best answer. Choices A, B, C, and E are incorrect.

Question 9

Say that the equilibrium price of natural gas would be $5 per thousand cubic feet, but there is a price floor imposed at $7 per thousand cubic feet.That price floor is then lowered to $5 per thousand cubic feet.As a result,
A)the shortage of natural gas will get worse.
B)the shortage of natural gas will get less severe.
C)the surplus of natural gas will get worse.
D)the surplus of natural gas will get less severe.
E)the surplus of natural gas will be eliminated.

Accepted Answer

Lowering the price floor to the equilibrium price eliminates the surplus, as the market can now clear at the equilibrium price.

Question 10

If the government wanted to reduce the quantity of a good traded, it could do so by:
A)setting a price ceiling for the good below the equilibrium price.
B)setting a price floor for the good above the equilibrium price.
C)tax the good more heavily.
D)tax an input used intensively in the industry more heavily.
E)doing any of the above.

Accepted Answer

Any of the above options could potentially reduce the quantity of a good traded.

A)Setting a price ceiling below the equilibrium price would create a shortage, reducing the quantity of the good traded. 
B)Setting a price floor above the equilibrium price would create a surplus, which could reduce demand and ultimately reduce the quantity of the good traded. 
C)Taxing the good more heavily would raise the cost of production, leading to a reduction in supply and potentially reduce the quantity traded. 
D)Taxing an input used intensively in the industry more heavily could raise production costs, reducing supply and reducing the quantity of the good traded.

Therefore, the government could choose any of the above options to reduce the quantity of a good traded.

Question 11

Suppose the equilibrium price of bread is $2.00 per loaf.If the government sets a price ceiling of $2.50 per loaf:
A)the price of wheat will rise and a shortage is created.
B)the quantity supplied of wheat will increase.
C)there will be no change in the quantity of bread demanded or supplied.
D)there will be a shortage of bread.
E)there will be a surplus of bread.

Accepted Answer

A price ceiling set above the equilibrium price has no effect, so the quantity of bread demanded and supplied remains unchanged.

Question 12

Assume a price floor is imposed in the wheat market at the equilibrium price and that a price ceiling is imposed in the gasoline market at the equilibrium price.An increase in supply in both the wheat and gasoline markets will create:
A)surpluses in both the wheat and gasoline markets.
B)shortages in both the wheat and gasoline markets.
C)a surplus in the wheat market and an increase the quantity of gasoline traded.
D)a surplus in the wheat market and a shortage in the gasoline market.
E)a shortage in the wheat market and a surplus in the gasoline market.

Accepted Answer

A price floor at the equilibrium price in the wheat market means the price cannot go lower, so an increase in supply will create a surplus. A price ceiling at the equilibrium price in the gasoline market means the price cannot go higher, so an increase in supply will allow more gasoline to be traded without creating a shortage.

Question 13

A government mandated price increase for doodads will:
A)decrease the quantity of doodads supplied but increase the quantity of doodads demanded.
B)increase the quantity of doodads supplied but decrease the quantity of doodads demanded.
C)increase the demand for doodads and decrease the supply of doodads.
D)decrease the demand for doodads and increase the supply of doodads.

Accepted Answer

Government mandated price increase for doodads will lead to an increase in the price of doodads, which will increase the quantity of doodads supplied as producers can now earn more revenue. At the same time, consumers may reduce the quantity of doodads demanded as the price has increased. Therefore, the government mandated price increase for doodads will increase the quantity of doodads supplied but decrease the quantity of doodads demanded.

Question 14

Say that the equilibrium price of natural gas would be $5 per thousand cubic feet, but there is a price ceiling imposed at $3 per thousand cubic feet.That price ceiling is then lowered to $2 per thousand cubic feet.As a result,
A)the shortage of natural gas will get worse.
B)the shortage of natural gas will get less severe.
C)the surplus of natural gas will get worse.
D)the surplus of natural gas will get less severe.
E)the shortage of natural gas will be eliminated.

Accepted Answer

When the price ceiling is lowered, it creates a greater difference between the market price and the ceiling price. In this case, the market equilibrium price is $5, but the ceiling price is $2. Thus, there is a greater incentive for buyers to purchase at the lower price, but less incentive for sellers to supply at the lower price, resulting in a shortage.

Question 15

Assume there is a price ceiling imposed on a good which is below the equilibrium price.Which of the following changes would reduce the size of the surplus?
A)An increase in demand.
B)A decrease in demand.
C)An increase in supply.
D)A decrease in supply.
E)None of the above; there is no surplus.

Accepted Answer

The answer of Assume there is a price ceiling imposed...

Question 16

The major drawback of a price ceiling is:
A)it causes a surplus.
B)government regulations of this kind are difficult to enforce.
C)it causes a shortage.
D)none of the above; there is no drawback.

Accepted Answer

A price ceiling sets a maximum price that can be charged for a good or service. When the ceiling is set below the market equilibrium price, it causes a shortage because the quantity demanded exceeds the quantity supplied. This is because suppliers are not able to charge a higher price to cover their costs and make a profit, so they reduce the quantity supplied. This can lead to black markets and other problems. While price ceilings may be implemented with good intentions, they often have unintended consequences and can be difficult to enforce. Therefore, the major drawback of a price ceiling is that it causes a shortage.

Question 17

Which of the following is not a result of rent controls?
A)reduced incentives to build new rental housing
B)reduced incentives for landlords to keep rental units in good repair
C)increased discrimination against people deemed undesirable on the part of landlords
D)increased turnover as tenants move more frequently from one rental unit to another

Accepted Answer

Rent controls typically lead to increased turnover as tenants move more frequently from one rental unit to another in search of lower rents. This is because landlords have less of an incentive to keep existing tenants and may be more motivated to seek out new tenants willing to pay higher rents. Reduced incentives to build new rental housing, reduced incentives for landlords to keep rental units in good repair, and increased discrimination against people deemed undesirable on the part of landlords are all potential results of rent controls.

Question 18

Assume there is a price ceiling imposed on a good which is below the equilibrium price.Which of the following changes would reduce the size of the surplus?
A)An increase in demand.
B)A decrease in demand.
C)An increase in supply.
D)A decrease in supply.
E)None of the above; there is no surplus.

Accepted Answer

The answer of Assume there is a price ceiling imposed...

Question 19

Assume a price floor is imposed at the current equilibrium price in the market for lettuce.If the demand for lettuce then increases:
A)a surplus of lettuce will be created.
B)a shortage of lettuce will be created.
C)the quantity of lettuce traded remains the same.
D)the quantity of lettuce supplied will increase.
E)the quantity of lettuce supplied will decrease.

Accepted Answer

The answer of Assume a price floor is imposed at...

Question 20

If the equilibrium price of widgets is $22, and then a price ceiling of $24 is imposed by the government, as a result,
A)there will be no effect on the widget market.
B)there will be a shortage of widgets.
C)there will be a surplus of widgets.
D)the price of widgets will increase.

Accepted Answer

Since the equilibrium price of widgets is $22 and the price ceiling imposed by the government is $24, the price ceiling is not binding. As a result, the market will continue to operate at the equilibrium price of $22 and there will be no effect on the widget market.

Quiz 4: Using Supply and Demand

Which of the following is true?

To the extent that a governmental price control succeeds in affecting price, it can be expected to lead to a corresponding:

"Rent Control," a form of price control in which the government sets a limit to what apartment owners can charge a tenant, is a mechanism of:

Whenever a price ceiling is imposed in a market, it is true that:

If the supply curve for housing has the normal positive slope, rent controls are likely to:

Which of the below is true?

The imposition of a price ceiling on a market often results in:

Suppose the equilibrium price of bread is $2.00 per loaf.If the government sets a price ceiling of $1.50 per loaf:

Say that the equilibrium price of natural gas would be $5 per thousand cubic feet, but there is a price floor imposed at $7 per thousand cubic feet.That price floor is then lowered to $5 per thousand cubic feet.As a result,

If the government wanted to reduce the quantity of a good traded, it could do so by:

Suppose the equilibrium price of bread is $2.00 per loaf.If the government sets a price ceiling of $2.50 per loaf:

Assume a price floor is imposed in the wheat market at the equilibrium price and that a price ceiling is imposed in the gasoline market at the equilibrium price.An increase in supply in both the wheat and gasoline markets will create:

A government mandated price increase for doodads will:

Say that the equilibrium price of natural gas would be $5 per thousand cubic feet, but there is a price ceiling imposed at $3 per thousand cubic feet.That price ceiling is then lowered to $2 per thousand cubic feet.As a result,

Assume there is a price ceiling imposed on a good which is below the equilibrium price.Which of the following changes would reduce the size of the surplus?

The major drawback of a price ceiling is:

Which of the following is not a result of rent controls?

Assume there is a price ceiling imposed on a good which is below the equilibrium price.Which of the following changes would reduce the size of the surplus?

Assume a price floor is imposed at the current equilibrium price in the market for lettuce.If the demand for lettuce then increases:

If the equilibrium price of widgets is $22, and then a price ceiling of $24 is imposed by the government, as a result,