Question 1

If a good is subject to a binding price ceiling and one purchases it on the black market,what can one expect to happen to the availability of the good over time?

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Question 2

If the minimum wage is supposed to be a help to workers,then why don't lawmakers raise the minimum wage even more?

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Question 3

What reasons are given by government to enact price controls?

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Question 4

Are price controls based on positive or normative economic thinking? Explain.

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Question 5

Why would most economists (and all free-market economists)not favor price controls?

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Question 6

What methods of product allocation might be used when the market for a good is under a price ceiling?

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Question 7

An election is coming up.The government has decided to curry votes from the cotton-growing states,so it has determined that the price of cotton is too low.
a.Suppose the government imposes a binding price floor on the cotton market.Draw a market model,showing the surplus of the market.
b.If the demand for cotton is elastic,why has the revenue in the market for cotton decreased?
c.Suppose the government (via the taxpayers)agrees to buy all the surplus at the price floor.For each market participant,consumers,producers,taxpayers,and government,explain who gains and loses,and why.

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Question 8

Why are the long-run consequences of a price control different from the short-run consequences of a price control? Be specific,and consider both price floors and price ceilings in your answer.

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Question 9

Discuss why any society would want a binding price floor law on a commodity such as corn.Who would benefit? Who would suffer? If it is the case that more suffering is caused by the presence of a price floor law,why does it remain in effect?

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Question 10

Compare the actions of buyers and sellers in price-controlled (price ceilings and floors)markets in the long run.

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Question 11

Consider a competitive market for apples.Demand is given by the relation: Q_d = 100 - 6P,whereas supply is given by the relation Q_s =50 + 4P.Evaluate the free market by finding the equilibrium price and quantity.Evaluate the market if government intervention imposes a price of $4,and then evaluate the market if government intervention imposes a price of $6.

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Question 12

How would a free market be characterized?

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Question 13

As a voter,why would or wouldn't someone vote for a referendum calling for an increase in the minimum wage? What consequences would result from raising the minimum wage?

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Question 14

Explain the term "clearing the market."

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Question 15

Distinguish between a shortage and scarcity.

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Question 16

In a 1973 paper entitled "A Living Wage," published in Annals of the American Academy of Political and Social Science (vol.409: 33-41),Daniel R.Fusfeld from the Department of Economics at the University of Michigan makes the following statement:
The only effective way to eliminate poverty in the United States is to pay all workers a living wage.As long as working people labor in jobs in which earnings are inadequate to meet even the poverty standards of income,their families will remain poor; furthermore,their poverty will be reproduced from one generation to the next.Our society will continue to suffer from all of the ills associated with poverty: disease,degradation,crime,hostility and anger.
This essay is a normative assessment of the living (or minimum)wage.In your short-answer essay,include the following elements:
a.What is the purpose of a living wage?
b.Compare and contrast the effects of a living-wage policy set in a labor market where the demand for workers is relatively price inelastic and one where it is relatively price elastic.Graph and explain your results.

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Quiz 6: Price Controls