Marianna Sidoryanskaya Macroeconomics Quiz 4
Consider Figure 4B-3, that represents the market for long-stemmed roses. If the market clearing price is $15, what is the total value of gains from trade?
$400
Many U.S. cities, especially those with large populations of renters, have rent controls. Suppose that Washington, DC sets a rent control of $300 per month on one-bedroom apartments. The graph on the right shows this situation. ____________________________________________________________________________________ 1) he rent control will create a _____ of apartments equal to _____ 2) The price of apartments would be $_____ if there was no rent control. With the rent control, the implicit or black market price is likely to be
1) Shortage; (Qd-Qs) 2) 700; around $1100
Suppose that owners of high-rise office buildings are the main employers of custodial workers in a city. The city has decided to impose rent controls, and it has established a rent ceiling below the previous equilibrium rental rate for offices throughout the city. 1) How will the quantity of offices that building owners lease change? 2) How will the market wage and equilibrium quantity of labor services provided by custodial workers be affected by the imposition of rent controls?
1) The quantity of office buildings supplied will decrease. 2) The market wage will fall and the equilibrium quantity will fall.
1) The diagram at right shows the market for pharmaceutical drugs. The pharmaceutical industry has benefited from advances in research and development that enable manufacturers to identify potential cures more quickly and therefore at lower cost. At the same time, the aging of our society has increased the demand for new drugs. Using the line drawing tool, illustrate the impacts of these developments on both the demand and supply. Label the new lines. 2) The equilibrium market quantity will 3) The equilibrium market price will
1) draw the exact same image, but go to the right three times, and up three times ()make sure is still on the right of the image) 2) increase 3) Change in an indeterminate way
The accompanying graph depicts the market for unskilled labor. With the market initially in equilibrium, let a minimum wage be set at $8 per hour. The amount of unemployment is now
40,000 hours of labor.
What is the economic effect of price ceilings?
An effective price ceiling will lead to a shortage.
Refer to the figure at right. The government wants to set an effective price support in the corn market. To be effective the price should be set
At P3
Labor is a key input at fast-food restaurants. Suppose that the government boosts the minimum wage above the equilibrium wage of fast-food workers. Which of the following best describes the response of the quantity of labor employed at restaurants?
Fewer workers will be employed since the wage increase will induce managers to seek to substitute other inputs for the now relatively more expensive labor.
Of the following groups, who gains from rent controls?
High-income people who live in rent-controlled apartments
In a market system, what must take place for quantity demanded to continually be equated with quantity supplied?
Relative prices must be able to adjust to market clearing levels.
Price floors set above a market equilibrium price cause
Surpluses
What is the economic effect of price floors?
Surpluses.
Which of the following statements is NOT true? ____________________________________________________________________________________ 1) Transaction costs include the cost of enforcing a contract as well as the informational costs. 2) In voluntary exchange both parties are better off because of the exchange. 3) Terms of exchange only include situations of barter where the market price is irrelevant. 4) Prices indicate what is relatively abundant and what is relatively scarce
Terms of exchange only include situations of barter where the market price is irrelevant.
The concept of consumer surplus is best described by the following situation.
The maximum price that Jackie was willing to pay for an iPhone was $400, but she bought it for $250 on black Friday.
In a market-based economy, what is the role of a system of prices?
To address the problem of scarcity.
The effect of a quantity restriction is
a higher price.
An import quota is an example of
a quantity restriction.
One effect of a minimum wage in the market for low-skilled labor is
a surplus of low-skilled labor
Economists assume that when there is a change in demand and/or supply, that prices reach a new equilibrium
after an adjustment period that varies
In which of the following situations will market clearing price decrease and the equilibrium quantity increase?
an increase in supply with no change in demand
he publication Car and Driver reduces transactions costs for high-performance car buyers
by providing reliable information so that car buyers do not have to spend as much time doing their own research.
When consumers would have been willing to pay higher prices at various quantities consumed than the market clearing price, the differences are called
consumer surplus.
Government-enforced prices such as price ceilings
disrupt the rationing function performed by prices in a market system.
As a result of establishing a legal minimum wage above the market clearing wage,
firms will hire fewer workers.
With respect to the market clearing price and the equilibrium quantity of good X, increases in the demand for and the supply of good X will definitely
increase the equilibrium quantity of good X but have an uncertain impact on the market clearing price of X.
Other things remaining equal, a decrease in the world oil supply like those that occurred in 1973-74 and 1979 would
increase the price of airline travel and decrease its equilibrium quantity.
If Niki is willing to pay up to $5 for an ice−cream bar but she actually pays $2 for it. The consumer surplus of the ice−cream bar for Niki
is $3.
A price ceiling set above the equilibrium price will cause which of the following?
no effect on either the price or quantity
Rent controls are an example of a
price ceiling.
When supply increases and the (downward-sloping) demand curve remains in the same position,
price falls and equilibrium quantity rises.
In a price system,
relative prices change constantly to reflect changes in supply and demand.
Rationing occurs for goods
that have a positive price.
When the government sets a price floor which is below the equilibrium price
the equilibrium price will be maintained.
If demand and supply both decrease
the equilibrium quantity definitely will decrease, but the change in market clearing price cannot be determined without more information.
Suppose Matt Damon and Cameron Diaz wear matching platinum jewelry in their new movie. After the movie is released, suppose that consumers increase their demand for the jewelry and at the same time manufacturers increase the supply of the jewelry. As a result,
the equilibrium quantity will increase, and there is an indeterminate change in the equilibrium price.
When a government imposes price controls, the result is that
the rationing function of prices is not allowed to function freely.
The difference between quantity restrictions and price ceilings as to their effect on the market is that
while some consumers gain from price ceilings, no consumers gain from quantity restrictions.