Question 1

An effective minimum wage law will lower the demand for labor.

Accepted Answer

An effective minimum wage law sets a floor on wages, directly affecting the supply side by making it illegal to pay less than the minimum wage, rather than directly lowering the demand for labor. Demand for labor might be indirectly affected due to increased labor costs, but the law itself aims to raise wages for low-income workers.

Question 2

An effective minimum wage law will probably have an unemployment effect on
 the lowest skilled and lowest paid workers.

Accepted Answer

An effective minimum wage law sets the wage above the equilibrium market rate, which can lead to a surplus of labor (more people willing to work at this higher wage than there are jobs available), particularly affecting the lowest skilled and lowest paid workers as employers seek more qualified individuals for these now higher-paid positions.

Question 3

Rent controls were used briefly in New York City during World War II due to a sudden increase in war-generated housing demand but were later withdrawn so as 
to stimulate new housing construction.

Accepted Answer

Rent controls in New York City were not merely a brief wartime measure but were extended beyond World War II and have evolved into various forms of regulation that persist to this day, aimed at keeping housing affordable and preventing excessive rent increases.

Question 4

As long as rent control exists, we can expect the housing market affected by these controls to suffer from housing shortages.

Accepted Answer

Rent control, by setting a maximum price for rentals below the market equilibrium, typically leads to a shortage of available housing because the lower prices increase demand while discouraging supply, as landlords may find it less profitable to rent out or maintain properties.

Question 5

A price floor is usually introduced when the equilibrium price is perceived to be
 "too high."

Accepted Answer

A price floor is introduced to prevent prices from being too low, not too high. It is a minimum price set by the government for certain goods and services to ensure that producers receive a minimum income that covers their costs.

Question 6

The reason that government introduced price controls during World War II was that war production reduced civilian goods production, therefore triggering a great inflation in prices of scarce consumer goods.

Accepted Answer

During World War II, the shift in production focus towards war materials significantly reduced the availability of consumer goods. This scarcity, combined with increased demand and purchasing power, led to inflationary pressures. Price controls were introduced by governments to prevent excessive inflation and ensure equitable distribution of scarce goods.

Question 7

The public policy device most likely to be directed at the problem of monopolistic power as it might develop in most product markets is:

Accepted Answer

Antitrust policy is specifically designed to prevent and control monopolistic power and ensure competition in the marketplace. It addresses issues such as monopolies, cartels, and mergers that could limit competition.

Question 8

A well-functioning, efficient market assumes:

Accepted Answer

A well-functioning, efficient market, according to economic theory, naturally moves towards a production and distribution equilibrium where no further gains can be made without someone else incurring losses. This concept is rooted in the idea of Pareto efficiency, where resources are allocated in a way that it is impossible to make any one individual better off without making at least one individual worse off.

Question 9

If we were producing commodity Q at a level of output where MC > MB, we would be better served:

Accepted Answer

When marginal cost (MC) is greater than marginal benefit (MB), it indicates overproduction. Reducing output would align production more closely with optimal efficiency, where MC equals MB.

Question 10

All but which of the following are frequently alleged to be shortcomings of market interventions by government:

Accepted Answer

Very low wages are not typically alleged to be a shortcoming of government interventions in markets. Government interventions, such as minimum wage laws, are often designed to increase wages rather than decrease them. The other options (excessive bureaucracy, timing problems and delays, high external costs, and excessive influence by political interest groups) are commonly cited criticisms of government intervention.

Question 11

The setting of a legal price floor, such as is common practice in American
Agricultural policy, has the economic effect of:

Accepted Answer

Price floors set above the equilibrium price cause surpluses because the quantity supplied exceeds the quantity demanded at that price. This is common in agricultural markets where governments aim to ensure farmers receive a minimum income for their products.

Question 12

Which of the following is not the likely outcome of establishing a legal price floor?

Accepted Answer

A legal price floor, set above the equilibrium price, typically results in surplus goods because the price is too high for consumers to purchase all the goods produced, leading to A) surplus goods. It also means B) sellers might receive artificially high incomes because they are selling their goods at a higher price than the market would naturally dictate. C) Buyers paying higher prices is a direct consequence of a price floor set above the equilibrium price. D) The market is not in equilibrium because the price floor disrupts the natural balance of supply and demand. E) is incorrect because a price floor, by guaranteeing a minimum price for goods, actually encourages resources to enter the industry, contrary to discouraging them.

Question 13

In a free market, a general economic downturn in the economy (such as a
Recession) will cause:

Accepted Answer

In a recession, demand for goods and services decreases, leading businesses to reduce their workforce or lower wages to cut costs, resulting in a fall in wage rates and in the number of workers employed.

Question 14

Which of the following is not likely to be the result of an effective rent control?

Accepted Answer

Effective rent control typically leads to an increase in demand for housing because lower prices make housing more accessible. However, it can also lead to a reduction in new housing construction, higher costs in non-controlled segments due to increased demand there, and an underallocation of resources to housing as developers and investors seek more profitable ventures.

Question 15

Which of the following has been true of New York City housing markets since
World War II?

Accepted Answer

Since World War II, New York City's housing market has not seen the removal of all wartime rent controls, has generally suffered from a shortage of affordable housing rather than higher-priced housing, and with rent controls, there has not been a tendency to overbuild low-cost housing.

Question 16

One of the effects of our efforts in the 1970s to set ceiling prices on American-
Produced petroleum was

Accepted Answer

Setting ceiling prices on American-produced petroleum made domestic oil production less profitable and less attractive compared to cheaper imported oil, leading to an increase in the importation of foreign oil as companies and consumers sought more cost-effective sources.

Question 17

Answer the next two questions on the basis of the following diagram:
 
-The diagram is used to show:

Accepted Answer

The answer of Answer the next two questions on the...

Question 18

Answer the next two questions on the basis of the following diagram:
 
-If MSC is marginal social cost and MSB is marginal social benefit, then:

Accepted Answer

The optimal level of government intervention is Q₀ because at this point, the marginal social cost (MSC) is equal to the marginal social benefit (MSB).

Question 19

Which of the following are possible shortcomings of both the market economy and government intervention?

Accepted Answer

Both market economies and government interventions can lead to the creation of externalities, which are costs or benefits not reflected in market prices, affecting third parties.

Question 20

The economic approach to determining the proper level of government
Intervention is to:

Accepted Answer

The economic approach to determining the proper level of government intervention typically involves conducting a benefit-cost analysis. This method assesses the positive outcomes (benefits) and negative outcomes (costs) associated with a particular intervention to decide whether it is economically justified.

Quiz 3: Government in the Economy: The Limits of Intervention

An effective minimum wage law will lower the demand for labor.

An effective minimum wage law will probably have an unemployment effect on the lowest skilled and lowest paid workers.

Rent controls were used briefly in New York City during World War II due to a sudden increase in war-generated housing demand but were later withdrawn so as to stimulate new housing construction.

As long as rent control exists, we can expect the housing market affected by these controls to suffer from housing shortages.

A price floor is usually introduced when the equilibrium price is perceived to be "too high."

The reason that government introduced price controls during World War II was that war production reduced civilian goods production, therefore triggering a great inflation in prices of scarce consumer goods.

The public policy device most likely to be directed at the problem of monopolistic power as it might develop in most product markets is:

A well-functioning, efficient market assumes:

If we were producing commodity Q at a level of output where MC > MB, we would be better served:

All but which of the following are frequently alleged to be shortcomings of market interventions by government:

The setting of a legal price floor, such as is common practice in American Agricultural policy, has the economic effect of:

Which of the following is not the likely outcome of establishing a legal price floor?

In a free market, a general economic downturn in the economy (such as a Recession) will cause:

Which of the following is not likely to be the result of an effective rent control?

Which of the following has been true of New York City housing markets since World War II?

One of the effects of our efforts in the 1970s to set ceiling prices on American- Produced petroleum was

Answer the next two questions on the basis of the following diagram: -The diagram is used to show:

Answer the next two questions on the basis of the following diagram: -If MSC is marginal social cost and MSB is marginal social benefit, then:

Which of the following are possible shortcomings of both the market economy and government intervention?

The economic approach to determining the proper level of government Intervention is to: