Microeconomics Chapter 4 Test Adaptive Questions

If the absolute price of a television is $800 and the relative price of a couch is four televisions, it follows that the absolute price of a couch is

$3,200. The relative price of a good is its price in terms of another good. If the absolute price of a television is $800 and the relative price of a couch is four televisions, it must be that the absolute price of a couch is $800 x 4 = $3,200.

Suppose that the market for hot dogs has an equilibrium price of $5 and an equilibrium quantity of 50 hot dogs. Now, suppose the government imposes a $4 price ceiling on hot dogs. If the quantity supplied at this price is 40 hot dogs, and the quantity demanded at this price is 60 hot dogs, how many hot dogs will be exchanged under this government imposed price ceiling.

40

Refer to Exhibit 4-3. Suppose that the government imposes a price ceiling at a price of $10. How many fewer units would be exchanged at the price ceiling than would be exchanged if the market for good Z were a free market?

40 In the absence of any price controls (a free market), the price of good Z is the equilibrium price of $14 and the number of units exchanged is 200. At a price ceiling of $10 the number of units exchanged is 160 since that is the number of units that the sellers are willing to sell. Thus 40 fewer units of good Z would be exchanged with the price ceiling than without any price controls.

Refer to Exhibit 4-1 which represents the market for artichokes. Suppose that the horizontal line at a price of $2 represents a price ceiling imposed by the government on this market. Based upon this information, which of the following statements is true?

At the price ceiling 600 artichokes will be bought and sold. A price ceiling is a government mandated maximum price above which the good cannot be legally sold. At a price of $2, the quantity demanded is 1,000 artichokes and the quantity supplied is 600 artichokes. Since the sellers are only willing to sell 600 artichokes that is the number of artichokes that will be bought and sold at this price.

A tax placed on the purchase of one good and not another good can lead to

a change in the relative price of both goods. Suppose the absolute price of good X and Y is $2. it follows that the relative price of 1X is 1Y and the relative price of 1Y is 1X. Now suppose a tax is placed on X such that new price for X is $3. Now the relative price of 1X is 1.5Y and the relative price of 1Y is 2/3X. A tax placed on the purchase of one good therefore change the relative price of both goods.

Some say that a price ceiling (legislated price below equilibrium price) makes money more valuable because a given unit of money (say, a $1 bill) can buy more of a good at a lower price than at a higher price. This leaves out the fact that

at a price ceiling, there is a shortage, and money might not be able to buy a good for which there is a shortage. At a price ceiling a shortage exists. This means that some people will not be able to use their money to buy the good at a price they are willing to pay. Money is less valuable if it can't be used to buy goods.

If the demand curve for unskilled workers is fairly steep, then a rise in the wage rate will lead to a ____________________ decline in the number of unskilled workers that firms want to hire than if the demand for unskilled workers is _______________.

bigger, fairly flat If the demand curve for unskilled workers is fairly steep, then a rise in the wage rate will lead to a bigger decline in the number of unskilled workers that firms want to hire than if the demand for unskilled workers is fairly flat.

Which of the following would not result from a price ceiling imposed on a product that is set below the equilibrium price?

more exchanges A price ceiling is a government mandated maximum price above which the good cannot be legally sold. A price ceiling that is set below the equilibrium price will keep the market from being able to reach equilibrium. The result of such a price ceiling will be a shortage of the good because the quantity demanded will be greater than the quantity supplied at the price ceiling. There can be fewer exchanges, the need for non-price rationing devices, buying and selling at prohibited prices, and tie-in sales as a consequence of the price ceiling.

Suppose that a new minimum wage is set above the equilibrium wage in the unskilled labor market. The expected result would be

reduce the number of hours worked by unskilled workers or reduce the number of unskilled workers employed. Minimum wage is a price floor. As with other price floors, there will be fewer units demanded at the higher wage than at the equilibrium wage. When the minimum wage is set above the equilibrium wage rate for unskilled workers, the result will be a reduction in the number or hours worked by those workers, or a reduction in the number of unskilled workers employed.

Suppose that the government sets a price ceiling in the market for avocados at $1 per avocado. If the equilibrium price of an avocado is $1.50, the result of the price ceiling will be a _____________ of avocadoes and ____________ exchanges will be made with the price ceiling than would be made in a free market.

shortage; fewer When the price of a good is below the equilibrium price, a shortage results. A price ceiling that is set below the equilibrium price discourages sellers from wanting to produce the good since supply curves are upward sloping. This means that the number of actual exchanges (units bought and sold) will be fewer with the price ceiling than at the equilibrium price.