Question 1

If the government removes a binding price floor from a market, then the price paid by buyers will
A)increase, and the quantity sold in the market will increase.
B)increase, and the quantity sold in the market will decrease.
C)decrease, and the quantity sold in the market will increase.
D)decrease, and the quantity sold in the market will decrease.

Accepted Answer

Removing a binding price floor typically leads to a decrease in price, as the market moves towards equilibrium, and an increase in the quantity sold, as more consumers are willing to buy the product at the lower price.

Question 2

Suppose the government has imposed a price floor on cellular phones. Which of the following events could transform the price floor from one that is binding to one that is not binding?
A)Cellular phones become less popular.
B)Traditional land line phones become more expensive.
C)The components used to produce cellular phones become less expensive.
D)Firms expect the price of cellular phones to fall in the future.

Accepted Answer

The answer of Suppose the government has imposed a price...

Question 3

Figure 6-2 
-Refer to Figure 6-2. The price ceiling
A)causes a shortage of 40 units.
B)is not binding, because it is set above the equilibrium price.
C)causes a shortage of 45 units.
D)causes a shortage of 85 units.

Accepted Answer

The price ceiling is set below the equilibrium price, causing suppliers to decrease the quantity they are willing to supply and consumers to increase the quantity they demand. This results in a shortage, which is the difference between the quantity demanded and the quantity supplied at the price ceiling. In this case, the shortage is equal to 85 units.

Question 4

A price floor will be binding only if it is set
A)equal to the equilibrium price.
B)above the equilibrium price.
C)below the equilibrium price.
D)either above or below the equilibrium price.

Accepted Answer

A price floor is a minimum price set by the government that is above the equilibrium price. It is considered binding when it results in a surplus, meaning there is a quantity supplied in excess of quantity demanded. Only setting the price floor above the equilibrium price will create such a situation.

Question 5

Which of the following is the most likely explanation for the imposition of a price floor on the market for corn?
A)Policymakers have studied the effects of the price floor carefully, and they recognize that the price floor is advantageous for society as a whole.
B)Buyers and sellers of corn have agreed that the price floor is good for both of them and have therefore pressured policy makers into imposing the price floor.
C)Buyers of corn, recognizing that the price floor is good for them, have pressured policymakers into imposing the price floor.
D)Sellers of corn, recognizing that the price floor is good for them, have pressured policymakers into imposing the price floor.

Accepted Answer

Sellers of corn, such as farmers and agricultural lobby groups, benefit from a price floor as it guarantees them a higher price for their product. Therefore, they are more likely to pressure policymakers into imposing a price floor on the market for corn.

Question 6

Suppose the government has imposed a price floor on the market for soybeans. Which of the following events could transform the price floor from one that is not binding into one that is binding?
A)Farmers use improved, draught-resistant seeds, which lowers the cost of growing soybeans.
B)The number of farmers selling soybeans decreases.
C)Consumers' income increases, and soybeans are a normal good.
D)The number of consumers buying soybeans increases.

Accepted Answer

The answer of Suppose the government has imposed a price...

Question 7

When a binding price floor is imposed on a market,
A)price no longer serves as a rationing device.
B)the quantity supplied at the price floor exceeds the quantity that would have been supplied without the price floor.
C)only some sellers benefit.
D)All of the above are correct.

Accepted Answer

The answer of When a binding price floor is imposed...

Question 8

When a binding price floor is imposed on a market to benefit sellers,
A)no sellers actually benefit.
B)some sellers benefit, but no sellers are harmed.
C)some sellers benefit, and some sellers are harmed.
D)all sellers benefit.

Accepted Answer

When a binding price floor is imposed on a market, only sellers who are able to sell their goods at or above the price floor benefit. However, some sellers who are not able to sell their goods at the higher price are harmed, as they are now producing goods that cannot be sold. Therefore, only some sellers benefit, while others are harmed.

Question 9

A nonbinding price floor
(i)causes a surplus.
(ii)causes a shortage.
(iii)is set at a price above the equilibrium price.
(iv)is set at a price below the equilibrium price.
A)(iii) only
B)(iv) only
C)(i) and (iii) only
D)(ii) and (iv) only

Accepted Answer

A nonbinding price floor is set below the equilibrium price, meaning it does not affect the market equilibrium, as the market price is already above the floor.

Question 10

A legal minimum on the price at which a good can be sold is called a
A)price subsidy.
B)price floor.
C)tax.
D)price ceiling.

Accepted Answer

A legal minimum on the price at which a good can be sold is called a price floor. It is designed to keep the price of a good at or above a certain level.

Question 11

A binding price floor
(i)causes a surplus.
(ii)causes a shortage.
(iii)is set at a price above the equilibrium price.
(iv)is set at a price below the equilibrium price.
A)(i) only
B)(iii) only
C)(i) and (iii) only
D)(ii) and (iv) only

Accepted Answer

A binding price floor is set above the equilibrium price, causing a surplus because the quantity supplied exceeds the quantity demanded at that price.

Question 12

If a nonbinding price floor is imposed on a market, then the
A)quantity sold in the market will decrease.
B)quantity sold in the market will stay the same.
C)price in the market will increase.
D)price in the market will decrease.

Accepted Answer

Nonbinding price floors do not affect the market price as they are below the equilibrium price. Therefore, the quantity sold in the market stays the same as before.

Question 13

A price floor is
A)a legal minimum on the price at which a good can be sold.
B)often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor.
C)a source of inefficiency in a market.
D)All of the above are correct.

Accepted Answer

A price floor is a legal minimum on the price at which a good can be sold. They are often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor. Price floors are a source of inefficiency in a market, as they create a situation where the quantity demanded is less than the quantity supplied, resulting in a surplus of the good. Therefore, all of the choices are correct.

Question 14

After a binding price floor becomes effective, a
A)smaller quantity of the good is bought and sold.
B)a larger quantity of the good is demanded.
C)a smaller quantity of the good is supplied.
D)All of the above are correct.

Accepted Answer

When a binding price floor becomes effective, it sets a price above the equilibrium price, which leads to a decrease in quantity demanded and an increase in quantity supplied. Therefore, a smaller quantity of the good is bought and sold. Option B is incorrect because a higher price will not necessarily increase demand, but rather limit it. Option C is incorrect because the quantity supplied will increase, not decrease.

Question 15

Which of the following observations would be consistent with the imposition of a binding price floor on a market? After the price floor becomes effective,
A)a smaller quantity of the good is bought and sold.
B)a larger quantity of the good is demanded.
C)a smaller quantity of the good is supplied.
D)the price falls below the equilibrium price.

Accepted Answer

The answer of Which of the following observations would be...

Question 16

If a price floor is not binding, then
A)the equilibrium price is above the price floor.
B)the equilibrium price is below the price floor.
C)there will be a surplus in the market.
D)there will be a shortage in the market.

Accepted Answer

If a price floor is not binding, it means that the equilibrium price is already above the price floor. Thus, there is no need for the price floor to be enforced, and the market will continue to operate at the equilibrium price without any intervention.

Question 17

If the government removes a binding price floor from a market, then the price received by sellers will
A)decrease, and the quantity sold in the market will decrease.
B)decrease, and the quantity sold in the market will increase.
C)increase, and the quantity sold in the market will decrease.
D)increase, and the quantity sold in the market will increase.

Accepted Answer

Removing a binding price floor means that the price ceiling is no longer in place, so the price can fall. As a result, sellers will receive a lower price for their goods, but the lower price will stimulate demand, resulting in an increase in the quantity sold. Therefore, the price received by sellers will decrease, and the quantity sold in the market will increase.

Question 18

Figure 6-2 
-Refer to Figure 6-2. The price ceiling causes quantity
A)supplied to exceed quantity demanded by 45 units.
B)supplied to exceed quantity demanded by 85 units.
C)demanded to exceed quantity supplied by 45 units.
D)demanded to exceed quantity supplied by 85 units.

Accepted Answer

At the price ceiling, quantity supplied is shown as 125 units and quantity demanded is shown as 40 units. The difference between the two is 85 units. Therefore, quantity demanded exceeds quantity supplied by 85 units.

Question 19

When a binding price floor is imposed on a market,
A)price no longer serves as a rationing device.
B)the quantity demanded at the price floor exceeds the quantity that would have been demanded without the price floor.
C)all sellers benefit.
D)All of the above are correct.

Accepted Answer

When a binding price floor is imposed on a market, the price is set higher than the equilibrium price, causing a surplus in the market. This means that the quantity supplied exceeds the quantity demanded, and price no longer serves as a rationing device. Choice B is incorrect because the quantity demanded at the price floor is less than the quantity supplied, so it does not exceed the quantity that would have been demanded without the price floor. Choice C is incorrect because although some sellers may benefit from the price floor, others may not due to the surplus in the market.

Question 20

If a price floor is not binding, then
A)there will be a surplus in the market.
B)there will be a shortage in the market.
C)there will be no effect on the market price or quantity sold.
D)the market will be less efficient than it would be without the price floor.

Accepted Answer

If a price floor is not binding, it means that the equilibrium price is already higher than the price floor. In this case, the market price will not change and the quantity sold will not be affected. There will also be no surplus or shortage in the market. The market will continue to operate efficiently without any interference from the price floor.

Quiz 6: Supply, Demand, and Government Policies

If the government removes a binding price floor from a market, then the price paid by buyers will

Suppose the government has imposed a price floor on cellular phones. Which of the following events could transform the price floor from one that is binding to one that is not binding?

Figure 6-2 -Refer to Figure 6-2. The price ceiling

A price floor will be binding only if it is set

Which of the following is the most likely explanation for the imposition of a price floor on the market for corn?

Suppose the government has imposed a price floor on the market for soybeans. Which of the following events could transform the price floor from one that is not binding into one that is binding?

When a binding price floor is imposed on a market,

When a binding price floor is imposed on a market to benefit sellers,

A nonbinding price floor (i) causes a surplus. (ii) causes a shortage. (iii) is set at a price above the equilibrium price. (iv) is set at a price below the equilibrium price.

A legal minimum on the price at which a good can be sold is called a

A binding price floor (i) causes a surplus. (ii) causes a shortage. (iii) is set at a price above the equilibrium price. (iv) is set at a price below the equilibrium price.

If a nonbinding price floor is imposed on a market, then the

A price floor is

After a binding price floor becomes effective, a

Which of the following observations would be consistent with the imposition of a binding price floor on a market? After the price floor becomes effective,

If a price floor is not binding, then

If the government removes a binding price floor from a market, then the price received by sellers will

Figure 6-2 -Refer to Figure 6-2. The price ceiling causes quantity

When a binding price floor is imposed on a market,

If a price floor is not binding, then