Question 1

-Refer to the above figure. If a price ceiling of $3 was set

Accepted Answer

The answer of 
-Refer to the above figure. If a...

Question 2

A price ceiling is

Accepted Answer

A price ceiling is a government-imposed limit on how high a price can be charged on a product, meaning it is a legal price above which a good or service cannot be sold.

Question 3

A price ceiling set below the market clearing price will tend to cause which of the following?

Accepted Answer

A price ceiling set below the market clearing price will cause a shortage because at the lower price, quantity demanded will exceed quantity supplied. As more consumers demand the good at the lower price, producers may face higher costs or lower profits, leading to a reduction in supply in the long term. However, in the short term, producers may be willing to sell some goods at the lower price, leading to a temporary shortage.

Question 4

A price ceiling set above the equilibrium price will cause which of the following?

Accepted Answer

A price ceiling set above the equilibrium price will not affect the market because the market price is already lower than the ceiling. The ceiling only becomes relevant if it is set below the equilibrium price, which would then potentially cause a shortage.

Question 5

Suppose the market clearing price is $20 and the price ceiling is $15. The price that prevails in the market will be

Accepted Answer

When the market clearing price is $20 but there is a price ceiling of $15, the price that prevails in the market will be the price ceiling of $15. This is because the price ceiling sets a legal maximum price that sellers are allowed to charge, and any price above this is illegal. Therefore, the market price cannot exceed the price ceiling of $15, and it will be the price that prevails in the market.

Question 6

-In the above figure, a shortage could be caused by a government price ceiling set at

Accepted Answer

A government price ceiling set below the equilibrium price can cause a shortage. If the equilibrium price is above $1.00, setting a price ceiling at $1.00 would result in a shortage as the quantity demanded would exceed the quantity supplied at that price.

Question 7

-Refer to the above figure. If a price floor of $5 was set

Accepted Answer

A price floor set above the equilibrium price results in a surplus. If the price floor is $5 and the equilibrium price is lower, the quantity sold would be limited to the quantity demanded at that price, which is 60 units.

Question 8

Price controls

Accepted Answer

Price controls are government-mandated limits on prices, either as a minimum or maximum price that can be charged for goods or services. They are usually implemented to protect consumers from high prices or to protect businesses from low prices.

Question 9

Suppose the market clearing price is $15 and the price ceiling is $17. The price that prevails in the market will be

Accepted Answer

The market clearing price is already below the price ceiling of $17, so there is no need for a change in price. Therefore, the price that prevails in the market will remain at $15.

Question 10

Nonprice rationing devices are required

Accepted Answer

Nonprice rationing devices are required to allocate goods when there is a price ceiling. Price ceilings are government-imposed limits on how high a price can be charged for a product or service, which can create a shortage of that product or service, and nonprice rationing devices are used to allocate the limited amount of goods or services among consumers. However, nonprice rationing devices are not required when there are price floors, which are government-imposed minimum prices for goods or services.

Question 11

All of the following are examples of nonprice rationing devices EXCEPT

Accepted Answer

Price controls are a form of price rationing, not nonprice rationing. Nonprice rationing devices include queues, black markets, and waiting lists.

Question 12

-Refer to the above figure. A price control has been set which has led to a shortage. This means that a

Accepted Answer

The answer of 
-Refer to the above figure. A price...

Question 13

-Refer to the above figure. If a price floor of $5 was set

Accepted Answer

A price floor set above the equilibrium price (which appears to be lower than $5 based on the context) would result in a surplus because the quantity supplied at that price would exceed the quantity demanded. The specific numbers (80 units sold, 40 units surplus) cannot be confirmed without the figure, but the concept of a surplus is correct for a price floor above equilibrium.

Question 14

A price ceiling established below the market clearing price will usually cause

Accepted Answer

A price ceiling set below the market clearing price typically leads to nonprice rationing mechanisms, such as long lines or lotteries, because the price cannot rise to equilibrium, creating a shortage.

Question 15

Suppose the market clearing price for gasoline is $2.25 per gallon. Now suppose that policy makers pass a law requiring that the maximum price that can be charged is $2.0 per gallon. Such a situation is an example of

Accepted Answer

A price ceiling is a government-imposed price control that sets a maximum price that can be charged for a good or service. In this case, the maximum price allowed is $2.0 per gallon, which is lower than the market clearing price of $2.25 per gallon. This means that there will be excess demand for gasoline, leading to a shortage of gasoline on the market.

Question 16

In the 1970s, the government placed price ceilings on gasoline prices. A shortage of gasoline occurred, and long lines formed at the pumps. Some gas stations required that in addition to paying the price on the pump you had to buy a blank will. The action of having to purchase the will in order to purchase gas is known as

Accepted Answer

The action of requiring customers to purchase a blank will in order to purchase gas is indicative of a black market, where goods are exchanged illegally due to shortages or price controls.

Question 17

-Refer to the above figure. A price control has been set which has led to a surplus. This means that a

Accepted Answer

A price floor set above the equilibrium price (P2 in this case) leads to a surplus because it sets the minimum price at which goods can be sold higher than what the market is willing to pay, resulting in excess supply.

Question 18

Price controls often generate

Accepted Answer

Price controls, such as maximum prices set below market-clearing prices, incentivize suppliers to reduce production or exit the market, leading to shortages. In response, buyers may turn to illegal suppliers or "black markets" where prices and quality are not regulated. Therefore, price controls often generate black markets.

Question 19

-Refer to the above figure. If a price floor of $3 was set

Accepted Answer

The answer of 
-Refer to the above figure. If a...

Question 20

-Refer to the above figure. A price ceiling has been set at P1, and a black market has opened. The equilibrium black market price will be

Accepted Answer

A price ceiling set at P1 creates a shortage as the quantity demanded exceeds the quantity supplied at that price, leading to a black market. In the black market, prices typically rise above the ceiling (P1) but do not exceed the equilibrium price (P3) where supply and demand would naturally meet without price controls.

Quiz 4: Extensions of Demand and Supply Analysis

-Refer to the above figure. If a price ceiling of $3 was set

A price ceiling is

A price ceiling set below the market clearing price will tend to cause which of the following?

A price ceiling set above the equilibrium price will cause which of the following?

Suppose the market clearing price is $20 and the price ceiling is $15. The price that prevails in the market will be

-In the above figure, a shortage could be caused by a government price ceiling set at

-Refer to the above figure. If a price floor of $5 was set

Price controls

Suppose the market clearing price is $15 and the price ceiling is $17. The price that prevails in the market will be

Nonprice rationing devices are required

All of the following are examples of nonprice rationing devices EXCEPT

-Refer to the above figure. A price control has been set which has led to a shortage. This means that a

-Refer to the above figure. If a price floor of $5 was set

A price ceiling established below the market clearing price will usually cause

Suppose the market clearing price for gasoline is $2.25 per gallon. Now suppose that policy makers pass a law requiring that the maximum price that can be charged is $2.0 per gallon. Such a situation is an example of

-Refer to the above figure. A price control has been set which has led to a surplus. This means that a

Price controls often generate

-Refer to the above figure. If a price floor of $3 was set

-Refer to the above figure. A price ceiling has been set at P1, and a black market has opened. The equilibrium black market price will be