chapter 8

A legal maximum price at which a good can be sold is a price: A) stabilization. B) ceiling. C) support. D) floor.

B) ceiling.

Binding price ceilings would create all of the following effects EXCEPT: A) shortages. B) reductions in product quality. C) a misallocation of resources. D) maximum gains from trade.

D) maximum gains from trade.

Ben is willing to work for $4/hour and an employer is willing to hire Ben for $7/hour. Which of the following statements is TRUE? A) A minimum wage of $7.50/hour would prevent this mutually beneficial exchange. B) Minimum wages do not prevent mutually beneficial exchanges. C) A minimum wage of $4.50/hour would prevent this mutually beneficial exchange. D) A minimum wage of $3.50/hour would prevent this mutually beneficial exchange.

A) A minimum wage of $7.50/hour would prevent this mutually beneficial exchange.

Which of the following is NOT a result of rent control? A) higher quality housing B) bribery C) fewer new apartments offered for rent D) less maintenance provided by landlords

A) higher quality housing

The deregulation of the airline industry caused: A) lower prices and more flights. B) higher prices and fewer flights. C) higher prices and more flights. D) lower prices and fewer flights.

A) lower prices and more flights.

The influence of the minimum wage in the American economy is very small because most workers earn: A) more than the minimum wage. B) less than the minimum wage. C) more or less than the minimum wage. D) near the minimum wage.

A) more than the minimum wage.

Which of the following statements is TRUE?Pricefloorssetabovetheequilibriumpricecause: I. shortages. II. surpluses.III. deadweight losses. A) I and III only B) II and III only C) III only D) I is true if demand is elastic, however II is true if demand is inelastic.

B) II and III only

Which of the following is the most correct statement about the impact of rent controls? A) The short-run supply curve for apartments is inelastic, so rent controls create larger shortages in the short run than in the long run. B) The short-run supply curve for apartments is inelastic, so rent controls create smaller shortages in the short run than in the long run. C) The long-run supply curve for apartments is inelastic, so rent controls create larger shortages in the long run than in the short run. D) The long-run supply curve for apartments is inelastic, so rent controls create smaller shortages in the long run than in the short run.

B) The short-run supply curve for apartments is inelastic, so rent controls create smaller shortages in the short run than in the long run.

A shortage results when: A) a binding price floor is imposed. B) a binding price ceiling is imposed. C) there is excess supply without any price controls. D) a price floor is imposed but it is not binding.

B) a binding price ceiling is imposed.

A price floor is: A) a maximum price allowed by law. B) a minimum price allowed by law. C) able to produce an efficient outcome. D) a tool used to increase government revenues.

B) a minimum price allowed by law.

Economists call the maximum legal price a price ceiling because the price: A) cannot legally go lower than the ceiling. B) cannot legally go higher than the ceiling. C) must match the legally established ceiling price. D) All of the answers are correct.

B) cannot legally go higher than the ceiling.

Which of the following is not an effect of a binding price floor? A) misallocation of resources B) deregulation C) surpluses D) wasteful increases in quality

B) deregulation

Deregulation of the airline markets reduced waste, increased efficiency, and: A) eliminated competition. B) improved allocation of resources. C) raised prices. D) caused an increase in costs.

B) improved allocation of resources.

Overtime, housing shortages caused by rent control ______ because the supply of housing is ______ elastic in the long run. A) increase; less B) increase; more C) decrease; less D) decrease; more

B) increase; more

The price floor regulation of the air line industry: A) was the leading factor in the development of low-cost airlines. B) led to a misallocation of resources by preventing the entry of innovative airlines. C) allowed the middle class the opportunity to fly at reduced rates. D) was based on the principle of low prices and low quality.

B) led to a misallocation of resources by preventing the entry of innovative airlines.

An increase in the minimum wage would likely increase unemployment among which group of workers? A) An increase in the minimum wage does not lead to an increase in unemployment. B) unskilled workers C) female workers D) older workers

B) unskilled workers

An alternative to rent controls that increases the quantity of housing and targets consumers that need low-cost rental property is: A) tax credits. B) vouchers. C) subsidies to landlords D) not available.

B) vouchers.

At a price ceiling of $6 per sheet of dry wall, quantity demanded is 100 and quantity supplied is 75. What will happen in the drywall market if there is an increased demand for drywall in the construction industry? A) Equilibrium will be restored. B) The shortage of drywall will fall below 25 units. C) The shortage of drywall will increase above 25 units. D) The surplus of drywall will increase above 25 units.

C) The shortage of drywall will increase above 25 units.

If a minimum wage is posted in the labor market: A) the demand for labor would increase. B) the supply of labor would decrease. C) a surplus of labor would develop. D) All of the answers are correct.

C) a surplus of labor would develop.

A binding price floor causes: A) excess demand. B) a shortage. C) a surplus. D) quantity demanded to exceed quantity supplied.

C) a surplus.

A market with a binding price ceiling fails to maximize all of the following EXCEPT: A) the gains from trade. B) consumer surplus. C) excess supply. D) producer surplus.

C) excess supply.

A price ceiling is a(n): A) legally established minimum price that can be charged for a good. B) illegally established minimum price that can be charged for a good. C) legally established maximum price that can be charged for a good. D) illegally established maximum price that can be charged for a good.

C) legally established maximum price that can be charged for a good.

Deregulation of the airline industry has led to: A) an increase in the quality and safety of air travel. B) increases in costs of production in air travel. C) more firms providing air travel services. D) fewer firms providing air travel services.

C) more firms providing air travel services.

In situations of excess demand, sellers might decrease service levels when they are unable to raise prices because they wish to: A) reduce excess demand. B) decrease surpluses. C) raise their profit levels. D) raise their sales.

C) raise their profit levels.

A price ceiling creates a ________ when it is set________. A) surplus; below the equilibrium price B) surplus; above the equilibrium price C) shortage; below the equilibrium price D) shortage; above the equilibrium price

C) shortage; below the equilibrium price

Rent control in New York City has resulted in: A) people living in luxury apartments and paying low rents. B) people having to bribe landlords to get apartments. C) people having difficulty finding apartments. D) All of the answers are correct.

D) All of the answers are correct.

Which of these cases would likely result from an increase in minimum wage? A) an increase in the price of hamburgers B) an increase in unemployment among teenagers C) incomes increase for those who keep minimum wage jobs D) All of the answers are correct.

D) All of the answers are correct.

Which of the following would be the least likely result of a binding price ceiling imposed in the market for gasoline? A) Buyers line up to buy gasoline. B) Buyers bribe station attendants to fill up their tanks. C) Some buyers will get less gasoline than they want. D) Competition in the market will be eliminated.

D) Competition in the market will be eliminated.

At a price ceiling of $1 per loaf of bread, quantity supplied is 99 loaves, which is less than quantity demanded. What must be true for the 100th loaf of bread? A) Consumers do not value the 100th loaf of bread. B) The cost of producing the 100th loaf of bread is less than $1.00. C) Consumers value the 100th loaf of bread at less than $1.00. D) Consumers value the 100th loaf of bread more than it costs producers to make it.

D) Consumers value the 100th loaf of bread more than it costs producers to make it.

Which of the following observations would be consistent with the impact of a binding price ceiling? A) Books are printed on higher quality paper. B) Full-service gasoline stations stay open for 24 hours. C) New automobiles are painted with more coats of paint. D) Newspapers switch to a smaller font size in order to decrease bulk.

D) Newspapers switch to a smaller font size in order to decrease bulk.

Because rent controls on apartments reduce profits: A) developers build and rent more apartments to make up for lost profit. B) condominiums are converted into apartments. C) landlords are less likely to discriminate against minorities in renting out apartments. D) apartment managers will give less consideration to renters' complaints.

D) apartment managers will give less consideration to renters' complaints.

Which of the following would be the least likely result of a binding price ceiling imposed in the market for rental cars? A) slow replacement of old rental cars with new ones B) poor maintenance of the rental cars C) dirtier exteriors and interiors of rental cars D) free gasoline given to people as an incentive to rent a car

D) free gasoline given to people as an incentive to rent a car

Allocating products with longlines, using a first-come, first-served system, is: A) the only way scarce goods can be allocated. B) necessary when waiting is a costless exercise. C) efficient, since people who are willing to wait the longest get the products. D) inefficient, because waiting wastes time.

D) inefficient, because waiting wastes time.

A deadweight loss is the total of: A) consumer and producer surplus when all mutually profitable gains from trade are exploited. B) consumer and producer surplus when all mutually profitable gains from trade are not exploited. C) lost consumer and producer surplus when all mutually profitable gains from trade are exploited. D) lost consumer and producer surplus when all mutually profitable gains from trade are not exploited.

D) lost consumer and producer surplus when all mutually profitable gains from trade are not exploited.

Price controls cause resources to be ________ not just geographically, but also across different ________ of those resources. A) overutilized; types B) properly allocated; demands C) cheaper; uses D) misallocated; uses

D) misallocated; uses