ECON chapter 8

Figure: Costs of Price Ceilings Reference: Ref 8-6 (Figure: Costs of Price Ceilings) Refer to the figure. What is the dollar amount of lost consumer surplus if a price ceiling of $4 is implemented?

-$10

Figure: Costs of Price Ceilings Reference: Ref 8-6 (Figure: Costs of Price Ceilings) Refer to the figure. What is the dollar amount of the value of wasted time if a price ceiling of $4 is implemented?

-$160

Figure: Price Floor Reference: Ref 8-20 (Figure: Price Floor) Refer to the figure. How much unemployment results from the imposition of a price floor set at $10?

-100 units

Figure: Price Floor Reference: Ref 8-20 (Figure: Price Floor) Refer to the figure. What are the lost gains from trade as a result of the imposition of the price floor?

-Areas (C + F)

Why do many consumers and politicians advocate for price controls?

-Price controls appear to be a straightforward response to the problem of price increases.

Figure: Deadweight Loss Refer to the figure. What areas represent the deadweight losses in the labor market as a result of the imposition of a minimum wage at $4?

-There is no deadweight loss in this market as a result of the $4 minimum wage.

A price floor is:

-a minimum price allowed by law.

A legal maximum price at which a good can be sold is a price:

-ceiling.

An economy with permanent, universal price controls is in essence a:

-command economy.

Price controls cause resources to be misallocated by:

-distorting the signals of demanders' willingness to pay and eliminating the incentives for suppliers to supply.

Under a binding price ceiling, one expects the quality of a good to:

-fall

New housing takes some time to build, so rent control creates larger shortages in the:

-long run than in the short run because long-run supply is more elastic.

A rent control is a regulation that:

-prevents rents from rising to equilibrium levels.

Figure: Airline Industry Refer to the figure. Suppose that airlines are regulated and prices are kept above the market level. According to the figure, the areas A and B represent, respectively, the:

-quality waste and deadweight loss.

How can sellers increase profits when they face a price ceiling?

-reduce the quality of the product and provide less customer service

Figure: Price Ceiling Reference: Ref 8-1 (Figure: Price Ceiling) Refer to the figure. A price ceiling of $10 results in a:

-shortage of 40 units.

When a price ceiling is in effect:

-some mutually beneficial trades between buyers and sellers do not occur.

Price floors would create all of the following effects EXCEPT:

-surpluses. -misallocation of resources. -deadweight loss. -wasteful decreases in product quality.(True answer)