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)
