Question 1

Suppose the market equilibrium price of wheat is $5 per bushel, and the government sets a price floor of $7 per bushel to aid growers. What is the most likely result of this action?
A) There will be a shortage of wheat.
B) There will be a surplus of wheat.
C) There will be an increase in the quantity of wheat demanded as the result of the price floor.
D) There will be a decrease in the quantity of wheat supplied as the result of the price floor.

Accepted Answer

When the government sets a price floor above the market equilibrium price, it creates a situation where the quantity supplied exceeds the quantity demanded. This leads to a surplus of the product, as producers are producing more than consumers are willing to purchase at the higher price. In this case, a price floor of $7 per bushel is above the market equilibrium price of $5 per bushel, so there will be a surplus of wheat. The government's attempt to aid growers will ultimately lead to waste and inefficiency, as the surplus wheat may go unused or may need to be stored, resulting in additional costs.

Question 2

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 prevents a higher market price from rationing a good, non-price factors such as waiting in long lines or favoritism become more important in the rationing process. A surplus of the good is unlikely to develop because the price ceiling prevents the price from rising to a level where supply and demand are equal. Scarcity of the good will not be eliminated because a price ceiling does not increase the quantity supplied. The future supply of the good may not expand rapidly because producers may not be able to earn a profit at the price ceiling.

Question 3

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 the market from adjusting to the increased demand for these products during emergencies, causing shortages and reduced availability.

Question 4

Economic analysis indicates minimum wage legislation has
A) made it possible for any teenager who wants to work to earn almost 80 percent as much as an adult.
B) made it easier for teenagers to find jobs that offer the opportunity for training.
C) been an important source of increases in income since most workers earn at or near the minimum wage.
D) reduced the on-the-job training opportunities available to teenagers.

Accepted Answer

Economic analysis suggests that minimum wage legislation has reduced the on-the-job training opportunities available to teenagers. This is because employers may be less willing to hire and train inexperienced workers if they have to pay them a higher minimum wage. Therefore, minimum wage laws may actually make it harder for teenagers to find jobs that offer training and development opportunities.

Question 5

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 6

A price floor set above an equilibrium price tends to cause persistent imbalances in the market because
A) Quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage.
B) Quantity demanded exceeds quantity supplied but price cannot fall to remove the surplus.
C) Quantity supplied exceeds quantity demanded but price cannot rise to remove the shortage.
D) Quantity supplied exceeds quantity demanded but price cannot fall to remove the surplus.

Accepted Answer

The answer of A price floor set above an equilibrium...

Question 7

Both price floors and price ceilings lead to
A) shortages.
B) surpluses.
C) reductions in quality.
D) a reduction in the quantity traded.

Accepted Answer

The answer of Both price floors and price ceilings lead...

Question 8

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, making it less efficient than price rationing. When prices are allowed to adjust to supply and demand, the allocation of goods is determined by the market mechanism, which efficiently directs resources to those willing to pay the most for them. In contrast, waiting in line creates inefficiencies such as wasted time and resources.

Question 9

Which of the following about minimum wage is true?
A) Most minimum wage workers are employed more than 40 hours per week.
B) Economic analysis indicates an increase in the minimum wage would increase the training opportunities available to inexperienced workers.
C) Most minimum wage workers are heads of families with incomes below the poverty level.
D) Most minimum wage workers are employed part-time, and they are often members of a household with an income well above the poverty level.

Accepted Answer

According to the Bureau of Labor Statistics, as of 2021, the majority of minimum wage workers are employed part-time, and many are members of households with incomes above the poverty level. This goes against option C which suggests that most minimum wage workers are heads of families with incomes below the poverty level. Option A is also incorrect, as the majority of minimum wage workers work fewer than 40 hours per week. Option B is not supported by economic analysis, which suggests that an increase in minimum wage would likely lead to reduced employment opportunities for inexperienced workers.

Question 10

When a price floor is imposed above the equilibrium price of a commodity,
A) quantity demanded will be greater than quantity supplied for the good.
B) the quantity demanded by consumers will be greater than at the equilibrium price.
C) a shortage of the good will develop.
D) a surplus of the good will develop.

Accepted Answer

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

Question 11

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. In this case, the minimum wage sets a floor below which employers are not allowed to pay their employees.

Question 12

Which one of the following will most likely be harmed by legislation exempting teenagers from the minimum wage?
A) a high school student seeking a part-time job
B) a high-skilled, 30-year-old worker who is unlikely to compete with low-skilled teenagers in the employment market
C) a large family that often employs the services of low-skilled, part-time workers
D) an illiterate 40-year-old worker with few labor skills

Accepted Answer

The answer of Which one of the following will most...

Question 13

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

Accepted Answer

The answer of In a market economy, which of the...

Question 14

When the price of a good is legally set below the equilibrium level, a shortage often results. This shortage
A) is a temporary failure of the market mechanism.
B) is the result of a shift in demand.
C) is the result of a shift in supply.
D) occurs because the price ceiling prevents the market mechanism from establishing an equilibrium price.

Accepted Answer

When the price of a good is legally set below the equilibrium level, it means that a price ceiling has been imposed. This prevents the market mechanism from establishing an equilibrium price by keeping prices artificially low. As a result, the quantity demanded exceeds the quantity supplied, leading to a shortage. The shortage is a direct result of the price ceiling, which causes the market to be unable to clear.

Question 15

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

Accepted Answer

When a price floor is imposed above market equilibrium, the quantity of milk supplied will increase (since farmers are incentivized to produce more at the higher price) while the quantity of milk demanded will decrease (as consumers are discouraged by the higher price). This results in a surplus of milk, meaning that the quantity supplied exceeds the quantity demanded.

Question 16

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 result is a shortage. This is because the quantity demanded exceeds the quantity supplied at the lower price, leading to a situation where not everyone who wants the product can get it. Therefore, choice C is the best option.

Question 17

If an increase in the government-imposed minimum wage pushes the price (wage) of unskilled labor above market equilibrium, which of the following will most likely occur in the unskilled labor market?
A) an increase in quantity of unskilled labor demanded
B) a decrease in the quantity of unskilled labor supplied
C) a shortage of unskilled labor
D) a surplus of unskilled labor (unemployment)

Accepted Answer

A government-imposed minimum wage that pushes the price (wage) of unskilled labor above market equilibrium would result in employers demanding less labor because labor becomes more expensive. At the same time, an increase in the minimum wage would make the supply of labor increase because more workers would be attracted to the higher wage. This would result in a surplus of unskilled labor (unemployment) as the quantity of labor supplied exceeds the quantity of labor demanded. Choice D is the best answer as it describes the most likely outcome in the unskilled labor market in this scenario.

Question 18

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 price ceiling is imposed, it limits the amount a supplier can charge for a good, creating a situation where demand exceeds supply. As a result, a shortage occurs. In this situation, non-price factors such as discrimination, favoritism or waiting in line tend to play a greater role in the allocation of the good, as consumers compete to acquire the limited supply. The amount supplied will generally be less than the amount demanded, which can lead to the emergence of a black market as prices on the illegal market are not subject to the price ceiling. The quality of the good is not necessarily affected by the price ceiling or the shortage that results. The demand for the product may increase in response to the low price, but this will not necessarily eliminate the shortage, especially if the price ceiling is set far below the market-clearing price.

Question 19

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 help direct goods to their highest valued uses. This is because when prices increase, only those individuals who value the goods the most will be willing to pay the higher price. This leaves more of the good available for those who truly need it, rather than being purchased by people who may not necessarily need it but are willing to pay the lower pre-disaster price.

Question 20

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

Imposing a price ceiling below the equilibrium price of milk would cause a prolonged milk shortage because it would encourage consumers to demand more milk than suppliers are willing and able to produce at the lower price. As a result, there would be excess demand or a shortage of milk in the market. Suppliers would have no incentive to increase production since they would not be able to earn enough revenue at the price ceiling to cover their costs or earn a profit. This would lead to a sustained shortage of milk in the market.

Quiz 4: Supply and Demand: Applications and Extensions

Suppose the market equilibrium price of wheat is $5 per bushel, and the government sets a price floor of $7 per bushel to aid growers. What is the most likely result of this action?

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

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

Economic analysis indicates minimum wage legislation has

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

A price floor set above an equilibrium price tends to cause persistent imbalances in the market because

Both price floors and price ceilings lead to

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

Which of the following about minimum wage is true?

When a price floor is imposed above the equilibrium price of a commodity,

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

Which one of the following will most likely be harmed by legislation exempting teenagers from the minimum wage?

In a market economy, which of the following would most likely cause a prolonged grain surplus?

When the price of a good is legally set below the equilibrium level, a shortage often results. This shortage

If a government-imposed price floor legally sets the price of milk above market equilibrium, which of the following will most likely happen?

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

If an increase in the government-imposed minimum wage pushes the price (wage) of unskilled labor above market equilibrium, which of the following will most likely occur in the unskilled labor market?

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

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

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