Question 1

Mortimer loves sushi. He loves sushi so much that he asks his congressional representative to work for passage of a binding price ceiling law. Who would be affected by this law and how?
A) Sellers would benefit from such a law because they would receive a higher price for their products.
B) Consumers would benefit from such a law because prices would be lower and all would be able to purchase sushi cheaply.
C) Consumers would benefit from such a law because the sushi would be made of higher-quality fish, and each serving would be larger than it had been with no binding price ceiling in place.
D) Some consumers would benefit from such a law because prices for sushi would be lower for those able to buy it in the legal market.
E) Sellers would benefit from such a law because they would be able to sell higher-quality sushi and thus capture a larger share of the market.

Accepted Answer

A binding price ceiling law would set a maximum price for sushi, meaning that the prices would be lower for those able to buy it in the legal market. However, some consumers may not be able to purchase sushi at all if the price ceiling is set too low. Sellers would not benefit from such a law, as they would receive a lower price for their products. The quality of the sushi is also not directly related to the price ceiling law.

Question 2

What is a black market?
A) It is an illegal market that emerges when binding and nonbinding price controls are in place.
B) It is an illegal market that emerges when binding price ceilings are in place.
C) It is an illegal market that emerges when binding price floors are in place.
D) It is an illegal market that emerges when only binding price ceilings and binding price floors are in place.
E) It is an illegal market that emerges when no price controls are present.

Accepted Answer

D

Question 3

The town of Fairness has a law that says that wages should be high enough to ensure that all people can afford to buy enough food to feed their families. The law that sets food prices low enough to meet these requirements would be an example of a
A) minimum wage law.
B) fair wage law.
C) price ceiling.
D) black market price.
E) ration price.

Accepted Answer

This is because a price ceiling sets a maximum price for a good or service, which in this case is for food. By setting the price low enough, the government ensures that all people can afford to buy enough food to feed their families. This is different from a minimum wage law, which sets a minimum hourly wage that employers must pay their employees. A fair wage law is similar to a minimum wage law, but it typically refers to a wage that is fair based on the value of the work being done. Black market price and ration price are not relevant to this scenario.

Question 4

Why are binding price ceiling laws passed?
A) They make goods more expensive and profitable) for firms.
B) They encourage sellers to produce more of a good.
C) They encourage producers to sell higher-quality products.
D) They permit customers to obtain higher-quality products.
E) They make a good less expensive for those customers who are able to purchase the good in the legal market.

Accepted Answer

Binding price ceiling laws are passed to make a good less expensive for customers who are able to purchase the good in the legal market. This is done by setting a legal maximum price that sellers are allowed to charge, which means that they cannot charge a higher price even if market conditions would normally dictate a higher price. As a result, some customers are able to obtain the product at a lower cost, though this may also lead to shortages or other negative consequences.

Question 5

Why would a politician find it difficult to remove a binding price ceiling?
A) because it greatly benefits firms, and they would spend a lot of money to lobby against the law's repeal
B) because it greatly benefits government, which receives additional tax revenue as a result
C) because it greatly benefits all consumers, and they are also voters
D) because it greatly benefits some consumers who are also voters
E) because it greatly benefits society as a whole, with all consumers able to buy as much as firms produce

Accepted Answer

A politician would find it difficult to remove a binding price ceiling because it greatly benefits some consumers who are also voters. If the politician removes the price ceiling, those consumers may be worse off and may not vote for that politician in the future.

Question 6

If a store sells a good at the market price, even though the government authorities have set the maximum price that can be charged for it, the store is selling the good in an)
A) black market for a market price that is higher.
B) black market for a market price that is lower.
C) effort to eliminate a surplus of the good.
D) legal market for a market price that is higher.
E) legal market for a market price that is lower.

Accepted Answer

The answer of If a store sells a good at...

Question 7

A consequence of either a price ceiling or a price floor is
A) a nonbinding price control.
B) a market surplus.
C) a market shortage.
D) waiting lines.
E) Price floors and price ceilings cannot have an identical outcome.

Accepted Answer

The answer of A consequence of either a price ceiling...

Question 8

If a store sells a good at the market price, even though the government authorities have set the minimum price that can be charged, the store is selling the good in an)
A) black market for a market price that is higher.
B) black market for a market price that is lower.
C) effort to eliminate a surplus of the good.
D) legal market for a market price that is higher.
E) legal market for a market price that is lower.

Accepted Answer

The answer of If a store sells a good at...

Question 9

Do all buyers benefit from a binding price ceiling?
A) Yes. A binding price ceiling benefits all buyers because it allows them to obtain the good in the legal market.
B) No. A binding price ceiling benefits only some buyers because not all are able to obtain the good in the legal market.
C) No. A binding price ceiling benefits no buyers because sellers are unwilling to sell any of their products.
D) No. A binding price ceiling benefits only some buyers because, although the price is initially lower, it eventually increases to the equilibrium price.
E) No. A binding price ceiling benefits no buyers because they are unwilling to buy any of the products at a price higher than the equilibrium.

Accepted Answer

A binding price ceiling, set below the market equilibrium price, creates a shortage because the quantity demanded exceeds the quantity supplied at that price. While some buyers benefit from the lower price, not all buyers can purchase the product due to the shortage, meaning only some buyers benefit.

Question 10

Why do government leaders impose price controls?
A) They are trying to promote the formation of black markets.
B) They are trying to ensure that the market reaches equilibrium.
C) They are trying to ensure that all consumers are able to purchase a specific product.
D) They are trying to ensure that a social goal is satisfied.
E) They are trying to increase the demand curve.

Accepted Answer

Government leaders impose price controls to ensure that a social goal is satisfied, such as making a product more affordable for low-income consumers or preventing price gouging during emergencies. This is often done through setting a price ceiling or floor, which can lead to shortages or surpluses in the market. The intention is to balance the needs of consumers with the goals of the government.

Question 11

What will happen in a market where a binding price ceiling is removed?
A) There will be downward pressure on the price in the legal market.
B) The products sold will improve in quality and become more plentiful.
C) Sellers will face a reduced incentive to sell the product.
D) Buyers will find the good more difficult to obtain in the legal market.
E) There will be increased pressure to buy and sell the good on the black market.

Accepted Answer

Removing a binding price ceiling allows prices to rise to the equilibrium level, encouraging producers to supply more and possibly improve quality to compete, thus making products more plentiful and potentially better in quality.

Question 12

Many states have laws that limit the maximum amount of interest that a lender can charge a borrower. Such a law is an example of an)
A) equilibrium price.
B) price ceiling.
C) price floor.
D) black market price.
E) ration price.

Accepted Answer

A law that limits the maximum amount of interest that a lender can charge a borrower is an example of a price ceiling. A price ceiling is a legal maximum price that can be charged for a good or service, set below the market equilibrium price. The purpose of this type of regulation is to protect consumers from high prices and ensure access to the good or service.

Question 13

Why do shortages develop under a binding price ceiling?
A) It encourages sellers to produce more of the product.
B) It encourages buyers to purchase less of the product.
C) It makes the price so low that the quantity demanded exceeds the quantity supplied in the legal market.
D) It makes the price so low that the quantity demanded exceeds the quantity supplied on the black market.
E) It encourages sellers to increase the quality of the products they sell, which in turn increases the quantity demanded.

Accepted Answer

A binding price ceiling sets a maximum legal price below the equilibrium price in a market. This makes the price of the product artificially low, which encourages buyers to demand more of the product than sellers are willing to supply. As a result, a shortage develops because the quantity demanded exceeds the quantity supplied in the legal market.

Question 14

A market where exchanges occur despite price regulations is called an) _______market.
A) hidden
B) noncompetitive
C) black
D) prohibited
E) outlaw

Accepted Answer

A black market is a market where exchanges occur despite price regulations or laws in place. It usually operates outside the legal system and is often associated with illegal activities such as drug trafficking or smuggling.

Question 15

Government officials who impose price controls
A) understand that their action causes a trade-off: giving up fairness to get efficiency.
B) understand that their action will induce a better achievement of the gains from trade.
C) understand that their action is supported by most economists, and hence best for society.
D) might not understand that their action causes confusion in the price signaling mechanism that directs the allocation of resources.
E) might not understand that their action will not get them the votes they seek.

Accepted Answer

Price controls cause confusion in the price signaling mechanism that directs the allocation of resources, which is a basic economic principle. Therefore, government officials who impose price controls may not understand this consequence.

Question 16

A binding price ceiling will have which of the following consequences?
A) There will be downward pressure on prices until quantity demanded equals quantity supplied.
B) There will be upward pressure on prices until quantity demanded equals quantity supplied.
C) There are no consequences to a binding price ceiling.
D) The quantity demanded will always exceed the quantity supplied.
E) The quantity demanded will always be smaller than the quantity supplied.

Accepted Answer

A binding price ceiling, set below the equilibrium price, causes a shortage because the quantity demanded exceeds the quantity supplied at that price.

Question 17

Why does a surplus exist under a binding price floor?
A) It encourages sellers to produce less of the product.
B) It encourages buyers to purchase more of the product.
C) It makes the price so high that the quantity supplied exceeds the quantity demanded in the legal market.
D) It makes the price so low that the quantity demanded exceeds the quantity supplied on the legal market.
E) It discourages sellers from increasing the quality of the products they sell, which in turn increases the quantity demanded.

Accepted Answer

A binding price floor sets a legal minimum price that is above the equilibrium price. This means that suppliers are willing to produce and sell more of the product at this higher price, while demanders are willing to buy less of the product at this higher price. This results in a surplus of the product, where the quantity supplied exceeds the quantity demanded at the legal market price.

Question 18

Use the following information to answer the next  questions. Market for flat-screen TVs:
Demand: QS1U1B1dS1U1B0 = 2,600 - 5P
Supply: QS1U1B1sS1U1B0 = -1,000 + 10P
-What would be the quantity demanded if a price ceiling is set at $150?
A) 500
B) 1,850
C) 240
D) 1,350
E) 260

Accepted Answer

The answer of Use the following information to answer the...

Question 19

Which of the following is an accurate statement about the consequence of a binding price ceiling?
A) Binding price ceilings do not allow consumers to pay a lower price for the product in the legal market.
B) Binding price ceilings encourage the formation of a black market.
C) Binding price ceilings discourage the formation of a black market.
D) Binding price ceilings create a surplus of the product.
E) Binding price ceilings cause consumers to purchase more of the product in the legal market.

Accepted Answer

When a price ceiling is set below the equilibrium price, it becomes a binding price ceiling. This means that the price ceiling prevents suppliers from charging the market price, resulting in a shortage of the product. In response, some consumers will turn to the black market where the product can be found at a higher price. Therefore, a binding price ceiling can encourage the formation of a black market.

Question 20

Price controls can be traced back as far as
A) ancient Babylon of 4,000 years ago.
B) ancient Greece of 2,500 years ago
C) ancient Rome of 2,000 years ago.
D) ancient Egypt of 3,000 years ago.
E) recent times, since organized markets under organized government and legal systems are necessary to effectively impose such controls.

Accepted Answer

The answer of Price controls can be traced back as...

Quiz 5: Price Controls

Mortimer loves sushi. He loves sushi so much that he asks his congressional representative to work for passage of a binding price ceiling law. Who would be affected by this law and how?

What is a black market?

The town of Fairness has a law that says that wages should be high enough to ensure that all people can afford to buy enough food to feed their families. The law that sets food prices low enough to meet these requirements would be an example of a

Why are binding price ceiling laws passed?

Why would a politician find it difficult to remove a binding price ceiling?

If a store sells a good at the market price, even though the government authorities have set the maximum price that can be charged for it, the store is selling the good in an)

A consequence of either a price ceiling or a price floor is

If a store sells a good at the market price, even though the government authorities have set the minimum price that can be charged, the store is selling the good in an)

Do all buyers benefit from a binding price ceiling?

Why do government leaders impose price controls?

What will happen in a market where a binding price ceiling is removed?

Many states have laws that limit the maximum amount of interest that a lender can charge a borrower. Such a law is an example of an)

Why do shortages develop under a binding price ceiling?

A market where exchanges occur despite price regulations is called an) _______market.

Government officials who impose price controls

A binding price ceiling will have which of the following consequences?

Why does a surplus exist under a binding price floor?

Use the following information to answer the next questions. Market for flat-screen TVs: Demand: Q_d = 2,600 - 5P Supply: Q_s = -1,000 + 10P -What would be the quantity demanded if a price ceiling is set at $150?

Which of the following is an accurate statement about the consequence of a binding price ceiling?

Price controls can be traced back as far as