Question 1

A price ceiling that sets the price of a good below market equilibrium will cause
A) an increase in quantity demanded of the good.
B) a decrease in quantity supplied of the good.
C) a shortage of the good.
D) all of the above.

Accepted Answer

The answer of A price ceiling that sets the price...

Question 2

Which of the following will most likely result from rent controls that reduce monthly rental rates below market equilibrium?
A) Shortages and black markets for rental housing will develop.
B) The quality of rental housing will improve.
C) The future supply of rental housing will increase rapidly.
D) Discrimination against minorities and persons with unconventional lifestyles will decline in the rental housing market.

Accepted Answer

Rent controls that reduce monthly rental rates below market equilibrium will create a shortage of rental housing because the quantity supplied will be less than the quantity demanded at the lower price. This shortage will cause a black market for rental housing to develop, where landlords will charge higher rents under the table.

Question 3

Which of the following would occur following the imposition of a price ceiling that sets the price of a good (for example, rental housing) below the market equilibrium?
A) an improvement in the quality of the good
B) an increase in the amount of the good available
C) a shortage of the good
D) a surplus of the good

Accepted Answer

When a price ceiling is imposed that is below the market equilibrium, the demand for the good will exceed the supply, leading to a shortage of the good. This means that consumers will not be able to purchase the amount of the good they desire at the lower price, and some may go without or resort to other, potentially inferior, alternatives.

Question 4

Which of the following is the most likely outcome of minimum wage laws?
A) an increase in both the quantity of labor supplied by workers and the quantity of labor demanded by firms
B) an increase in the quantity of labor supplied by workers and a decrease in the quantity of labor demanded by firms
C) a decrease in the quantity of labor supplied by workers and an increase in the quantity of labor demanded by firms
D) a decrease in both the quantity of labor supplied by workers and the quantity of labor demanded by firms

Accepted Answer

When minimum wage laws are introduced, the wage rate for workers is increased. This increase in wage rate will discourage some workers from leaving their jobs and may also attract more people into the labor market. Hence, there will be an increase in the quantity of labor supplied by workers. On the other hand, firms may choose to hire fewer workers or reduce their working hours to compensate for the increased wage expenses. Therefore, there will be a decrease in the quantity of labor demanded by firms. Hence, the most likely outcome of minimum wage laws is an increase in the quantity of labor supplied by workers and a decrease in the quantity of labor demanded by firms.

Question 5

In a market economy, which of the following will most likely cause a prolonged milk shortage?
A) an increase in the demand for milk
B) an increase in the supply of milk
C) imposition of a price floor above the equilibrium price of milk
D) imposition of a price ceiling below the equilibrium price of milk

Accepted Answer

A price ceiling below the equilibrium price of milk will result in a situation where the price of milk is artificially low and the quantity demanded of milk will exceed the quantity supplied. This will result in a prolonged milk shortage.

Question 6

Suppose the market equilibrium price of corn is $5 per bushel, and the government sets a price ceiling of $4 per bushel. What is the most likely result of this action?
A) There will be a shortage of corn.
B) There will be a surplus of corn.
C) There will be a decrease in the quantity of corn demanded as the result of the price ceiling.
D) There will be an increase in the quantity of corn supplied as the result of the price ceiling.

Accepted Answer

When the government sets a price ceiling below the market equilibrium price, a shortage of the good is likely to occur. In this case, with a price ceiling of $4 per bushel, some farmers may choose not to produce corn because they cannot cover their costs at such a low price, while consumers may demand more corn at the lower price. As a result, the quantity demanded will exceed the quantity supplied, leading to a shortage of corn.

Question 7

When a shortage of a good is present due to a price ceiling,
A) the amount supplied will be greater than the amount demanded.
B) the quality of the good will generally improve.
C) non-price factors, such as discrimination or waiting in line, will play a greater role in the allocation of the good.
D) the demand for the product will increase and, thereby, eliminate the shortage.

Accepted Answer

When a shortage of a good is present due to a price ceiling, the price of the good is lower than the market equilibrium. This causes the quantity demanded to exceed the quantity supplied, creating a shortage. In this situation, non-price factors, such as discrimination or waiting in line, will play a greater role in the allocation of the good. Therefore, option C is the correct choice. Options A and D are incorrect because if the amount supplied was greater than the amount demanded, there would be no shortage, and if the demand for the product increased, it would push the market price up towards the equilibrium, eliminating the shortage. Option B is incorrect because quality is not directly linked to a shortage caused by a price ceiling.

Question 8

A law establishing a maximum legal price for a good or service (rent controls for example) is known as
A) an equilibrium price.
B) a price floor.
C) a price ceiling.
D) a price wall.

Accepted Answer

A price ceiling is a legal maximum price that can be charged for a good or service. This is often done to protect consumers from high prices, but can lead to shortages and decreased quality in the long run. Rent controls, for example, are a common form of price ceiling.

Question 9

After a natural disaster, such as a hurricane, the increased demand for certain items (like lumber, electric generators, and chainsaws) causes their prices to rise. These higher prices
A) discourage the flow of these items into the area.
B) encourage consumers to purchase the items even if they do not plan to use them.
C) help to direct the items toward their highest valued uses.
D) do all of the above.

Accepted Answer

Higher prices incentivize suppliers to direct their goods towards the highest valued uses because they can profit more by selling to those willing to pay the most. Discouraging the flow of goods into the area would be counterproductive in a disaster situation, and there is no evidence to suggest that higher prices encourage unnecessary purchases.

Question 10

A law establishing a minimum legal price for a good or service (the minimum wage for example) is known as
A) an equilibrium price.
B) a price floor.
C) a price ceiling.
D) a price wall.

Accepted Answer

A law establishing a minimum legal price for a good or service is known as a price floor. This sets a minimum price above the equilibrium price, creating a surplus of supply over demand. The most common example is the minimum wage, which is the lowest wage employers can pay their employees legally.

Question 11

If a local government enacts rent control legislation that sets the price of rental housing below equilibrium, which of the following will most likely happen in the local rental housing market?
A) Discrimination in the rental housing market will be less likely.
B) The quality of rental housing will improve.
C) A surplus of rental housing will develop.
D) A shortage of rental housing will develop.

Accepted Answer

When the price of rental housing is set below equilibrium, there will be an excess demand for rental housing. Landlords will be incentivized to exit the market, reduce maintenance or quality, or convert their properties to other uses. In contrast, tenants will be incentivized to demand more rental housing, which will increase the quantity demanded. This creates a mismatch between the supply and demand of rental housing, meaning that there will be a shortage of rental housing.

Question 12

When several hurricanes hit Florida in 2004, a number of local governments imposed price controls that prevented sellers from raising their prices for badly needed products like plywood and generators. In the areas where the controls were imposed, they resulted in
A) an expanded availability of these badly needed products.
B) a reduced availability of these badly needed products.
C) an increase in the speed with which people recovered from the hurricanes.
D) a more efficient allocation of these goods for which price controls were in effect.

Accepted Answer

Price controls prevent sellers from raising their prices, which can lead to a reduced supply of goods. In this case, the badly needed products such as plywood and generators became scarce due to the price controls, which prevented sellers from raising their prices to meet the increased demand. Therefore, the correct choice is B.

Question 13

Because of price controls in the former Soviet Union, people often waited in long lines for food and other necessities. Modern economic theory would indicate that, relative to price rationing, waiting in line is
A) just as efficient.
B) less efficient because the time spent waiting in line imposes an opportunity cost on the buyer that does not generate revenue for the seller.
C) more efficient since waiting in line reduces the transaction costs of purchasing goods.
D) more efficient since waiting in line reduces the cost of the goods to the consumer.

Accepted Answer

Waiting in line imposes an opportunity cost on the buyer that does not generate revenue for the seller. This means that the time spent waiting in line could have been used for something else, causing an inefficiency in the allocation of resources. Price rationing, on the other hand, ensures that goods are allocated to those who are willing and able to pay for them, leading to a more efficient allocation of resources.

Question 14

If a government imposed price ceiling legally sets the price of beef below market equilibrium, which of the following will most likely happen?
A) The quantity of beef demanded will decrease.
B) The quantity of beef supplied will increase.
C) There will be a surplus of beef.
D) There will be a shortage of beef.

Accepted Answer

A price ceiling that is set below market equilibrium creates a shortage in the market. At the artificially lower price, the quantity demanded will increase while the quantity supplied will decrease, causing a shortage. Therefore, option D is the correct answer.

Question 15

When a price ceiling is imposed below the equilibrium price of a commodity,
A) quantity supplied will be greater than quantity demanded for the good.
B) the problem of scarcity will be solved.
C) a shortage of the good will develop.
D) a surplus of the good will develop.

Accepted Answer

When a price ceiling is imposed below the equilibrium price, the quantity demanded of the good will increase as consumers are willing to buy more at the lower price, while the quantity supplied will decrease as producers may not find it profitable to produce or sell the good at the lower price. This leads to excess demand or shortage of the good, where the quantity demanded exceeds the quantity supplied.

Question 16

A price floor that sets the price of a good above market equilibrium will cause
A) a decrease in quantity demanded of the good.
B) an increase in quantity supplied of the good.
C) a surplus of the good.
D) all of the above.

Accepted Answer

The answer of A price floor that sets the price...

Question 17

When government imposes price controls in a market,
A) non-price factors become more important in the rationing of the good.
B) efficiency in the market is enhanced.
C) shortages and surpluses are eliminated.
D) buyers and sellers both become better off.

Accepted Answer

When government imposes price controls in a market, the price of the good is kept artificially low or high. This often results in an imbalance between the quantity demanded and quantity supplied, which leads to shortages or surpluses. In the presence of shortages, non-price factors such as personal connections, discrimination, or waiting in long lines, become more important in the rationing of goods. This is because the price mechanism is no longer working to allocate goods efficiently. Therefore, Choice A is the best answer. Choices B, C, and D are incorrect because price controls often lead to inefficiencies, shortages, and a worsened situation for either buyers or sellers.

Question 18

Whenever a shortage occurs (for example, in parking spaces), and the price does not rise or is not permitted to rise, some method of non-price rationing must occur (for example, driving around looking for a parking space). Which of the following is an advantage of price rationing relative to non-price rationing methods?
A) Economic theory indicates that price rationing leads to a less economically efficient allocation of goods.
B) Non-price rationing techniques redistribute income from consumers to producers; price rationing does not.
C) The demand for goods will be more elastic if price rationing is used to allocate goods.
D) When higher prices are used to resolve shortages, the higher prices will encourage suppliers to increase the quantity available.

Accepted Answer

When prices are allowed to rise in response to a shortage, it creates an incentive for suppliers to produce more of the goods and bring them to market. This ultimately leads to an increase in the quantity available and a reduction in the shortage. Non-price rationing methods, such as queuing or lottery systems, do not provide this incentive for producers to increase supply. Therefore, price rationing is more effective in resolving shortages than non-price rationing methods.

Question 19

If we observe long lines of people camping out to get tickets to a concert, this tells us
A) the ticket price is below the market equilibrium price.
B) the ticket price is above the market equilibrium price.
C) it is likely to be a good concert, but it doesn't tell us anything about the ticket price.
D) the opportunity cost of time of the people in line is higher than the average for the general population.

Accepted Answer

When people are willing to camp out for tickets, it indicates that the demand exceeds the supply at the current price, suggesting the ticket price is below the market equilibrium price.

Question 20

When a price ceiling prevents a higher market price from rationing a good,
A) a surplus of the good will develop.
B) scarcity of the good will be eliminated.
C) non-price factors will play a more important role in the rationing process.
D) the future supply of the good will expand rapidly.

Accepted Answer

When a price ceiling is put in place, it sets a maximum price that a good can be sold for, which is typically below the equilibrium price. This means that there is excess demand for the good, which cannot be satisfied by adjusting the price. In this situation, non-price factors such as waiting in line or a first-come, first-serve system become more important in rationing the good. This can lead to inefficiencies in the allocation of the good, as those who are willing and able to pay a higher price may not be able to obtain it.

Quiz 4: Supply and Demand: Applications and Extensions

A price ceiling that sets the price of a good below market equilibrium will cause

Which of the following will most likely result from rent controls that reduce monthly rental rates below market equilibrium?

Which of the following would occur following the imposition of a price ceiling that sets the price of a good (for example, rental housing) below the market equilibrium?

Which of the following is the most likely outcome of minimum wage laws?

In a market economy, which of the following will most likely cause a prolonged milk shortage?

Suppose the market equilibrium price of corn is $5 per bushel, and the government sets a price ceiling of $4 per bushel. What is the most likely result of this action?

When a shortage of a good is present due to a price ceiling,

A law establishing a maximum legal price for a good or service (rent controls for example) is known as

After a natural disaster, such as a hurricane, the increased demand for certain items (like lumber, electric generators, and chainsaws) causes their prices to rise. These higher prices

A law establishing a minimum legal price for a good or service (the minimum wage for example) is known as

If a local government enacts rent control legislation that sets the price of rental housing below equilibrium, which of the following will most likely happen in the local rental housing market?

When several hurricanes hit Florida in 2004, a number of local governments imposed price controls that prevented sellers from raising their prices for badly needed products like plywood and generators. In the areas where the controls were imposed, they resulted in

Because of price controls in the former Soviet Union, people often waited in long lines for food and other necessities. Modern economic theory would indicate that, relative to price rationing, waiting in line is

If a government imposed price ceiling legally sets the price of beef below market equilibrium, which of the following will most likely happen?

When a price ceiling is imposed below the equilibrium price of a commodity,

A price floor that sets the price of a good above market equilibrium will cause

When government imposes price controls in a market,

If we observe long lines of people camping out to get tickets to a concert, this tells us

When a price ceiling prevents a higher market price from rationing a good,