CH 6 PRICE CONTROLS

A binding minimum wage A. alters both the quantity demanded and quantity supplied of labor. B. affects only the quantity of labor demanded; it does not affect the quantity of labor supplied. C. has no effect on the quantity of labor demanded or the quantity of labor supplied. D. causes only temporary unemployment, since the market will adjust and eliminate any temporary surplus of workers.

A. alters both the quantity demanded and quantity supplied of labor.

In the event of a binding price ceiling, what is one function that a black market serves? A. reduces the shortage caused by the price ceiling B. decreases the price even further C. creates a monopoly D. causes a surplus of the good

A. reduces the shortage caused by the price ceiling

Which of the following is the most likely explanation for the imposition of a price ceiling on the market for milk? A.Policymakers have studied the effects of the price ceiling carefully, and they recognize that the price ceiling is advantageous for society as a whole. B. Buyers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling. C. Sellers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling. D. Buyers and sellers of milk have agreed that the price ceiling is good for both of them and have therefore pressured policymakers into imposing the price ceiling.

B. Buyers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling.

A shortage results when A. a nonbinding price ceiling is imposed on a market. B. a nonbinding price ceiling is removed from a market. C. a binding price ceiling is imposed on a market. D. a binding price ceiling is removed from a market.

B. a nonbinding price ceiling is removed from a market.

A price floor will be binding only if it is set A. equal to the equilibrium price. B. above the equilibrium price. C. below the equilibrium price. D. either above or below the equilibrium price.

B. above the equilibrium price.

Price ceilings and price floors that are binding A. are desirable because they make markets more efficient and more fair. B. cause surpluses and shortages to persist since price cannot adjust to the market equilibrium price. C. can have the effect of restoring a market to equilibrium. D. are imposed because they can make the poor in the economy better off without causing adverse effects.

B. cause surpluses and shortages to persist since price cannot adjust to the market equilibrium price.

What is one unintended consequence of rent control? A. people in rent-controlled units will relocate more often B. landlords may not maintain rental units C. too many apartments will be built, creating a surplus of units D. people will choose not to live in big cities

B. landlords may not maintain rental units

The minimum wage is an example of A. price ceiling. B. price floor. C. wage subsidy. D. tax.

B. price floor.

A price ceiling below the EP is (Binding or nonbinding)

Binding

A price floor above the EP (Binding or Nonbinding)

Binding

Which of the following is correct? A.Price controls always help those they are designed to help. B. Price controls never help those they are designed to help. C. Price controls often hurt those they are designed to help. D. Price controls always hurt those they are designed to help.

C. Price controls often hurt those they are designed to help.

Which of the following would NOT be a result of a binding price ceiling on child care? A. a quantity of child care demanded greater than quantity supplied B. a decrease in quality of care C. an increase in the quantity of child are supplied D. A lower price of childcare

C. an increase in the quantity of child are supplied

Supply and demand generally become more elastic in the long run. This means that shortages caused by price ceilings _______ in the long run. A. disappear completely B. become smaller C. become larger D. become infinitely large

C. become larger

If the government removes a binding price floor from a market, then the price paid by buyers will A. increase and the quantity sold in the market will increase. B. increase and the quantity sold in the market will decrease. C. decrease and the quantity sold in the market will increase. D. decrease and the quantity sold in the market will decrease.

C. decrease and the quantity sold in the market will increase.

Suppose roses are currently selling for $20 per dozen, but the equilibrium price of roses is $30 per dozen. We would expect a A. shortage to exist and the market price of roses to increase. B. shortage to exist and the market price of roses to decrease. C. surplus to exist and the market price of roses to increase. D. surplus to exist and the market price of roses to decrease.

C. surplus to exist and the market price of roses to increase.

What will be the effect of a nonbinding price ceiling? A. a surplus will be created B. a shortage will be created C. there will be no effect D. the effect is unknown

C. there will be no effect

Which of the following is the most likely explanation for the imposition of a price floor on the market for corn? A. Policymakers have studied the effects of the price floor carefully, and they recognize that the price floor is advantageous for society as a whole. B. Buyers and sellers of corn have agreed that the price floor is good for both of them and have therefore pressured policy makers into imposing the price floor. C. Buyers of corn, recognizing that the price floor is good for them, have pressured policymakers into imposing the price floor. D. Sellers of corn, recognizing that the price floor is good for them, have pressured policymakers into imposing the price floor.

D. Sellers of corn, recognizing that the price floor is good for them, have pressured policymakers into imposing the price floor.

A binding price floor on the market for milk leads to A. a higher price received by sellers B. a higher price paid by buyers C. a surplus of milk D. all of these are correct

D. all of these are correct

The goal of rent control is to A. facilitate controlled economic experiments in urban areas. B. help landlords by assuring them a low vacancy rate for their apartments. C. help the poor by assuring them an adequate supply of apartments. D. help the poor by making housing more affordable.

D. help the poor by making housing more affordable.

Which of the following is true about labor markets? A. the minimum wage is a price ceiling B. unemployment is a labor shortage C. firms supply the labor D. none of the above

D. none of the above

A price ceiling above the EP is (Binding or nonbinding)

Nonbinding

A price floor below the EP (Binding or Nonbinding)

Nonbinding

Legally established maximum price for a good or service

Price ceiling

Legally established minimum price for a good or service

Price floor

Who is the price ceiling meant to protect? (The buyers or the sellers)

The buyers

2. Business leaders often say that there is a "shortage" of skilled workers, and so they argue that immigrants need to be brought in to do these jobs. For example, an AP article pointing out that a special U.S. visa program, the H-2A program, "allows employers to hire foreign workers temporarily if they show that they were not able to find U.S. workers for the jobs." How do unregulated markets cure a "labor shortage" when there are no immigrants to boost the labor supply? a. Let the price of labor increase. b. Let the price of labor decrease. c. Contract production. d. Expand production.

a. Let the price of labor increase.

1: A review of the jargon: Is rent control a "price ceiling" or a "price floor?" a. price ceiling b. price floor

a. price ceiling

4: If the government forced all bread manufacturers to sell their products at a "fair price" that was half the current, free-market price, what would happen to the quantity supplied of bread? a. quantity supplied decreases. b. quantity supplied increases. c. Indeterminate with the given information.

a. quantity supplied decreases.

1. How does a free market eliminate a shortage? a. By letting the price fall. b. By letting the price rise. c. By creating quotas. d. By creating a price ceiling.

b. By letting the price rise.

3: If a government decides to make health insurance affordable by requiring all health insurance companies to cut their prices by 30%, what will probably happen to the number of people covered by health insurance? a. More people will be covered because it's cheaper and more people can now afford it. b. Fewer people will be covered because health insurance companies will supply less. c. The number of insured will not change.

b. Fewer people will be covered because health insurance companies will supply less.

3: In the town of Freedonia, the government declares that all street parking must be free: There can be no parking meters. In an almost identical town of Meterville, parking costs $5 per hour (or $1.25 per 15 minutes). Where will it be easier to find parking: in Freedonia or Meterville? a. Freedonia b. Meterville c. Indeterminate with the given information.

b. Meterville

5: With these price controls on bread, would you expect bread quality to rise or fall? a. Quality rises b. Quality falls c. Indeterminate with the given information.

b. Quality falls

6: Price controls distribute resources in many unintended ways. In the following cases below, who will probably spend more time waiting in line to get scarce, price-controlled goods? Choose one from each pair: a. Working people b. Retired people

b. Retired people

9: Which job exists in part because time-sensitive wealthy individuals want to pay someone else to wait in line for them? a. Fast food employees b. Ticket scalpers c. Construction workers d. Truck drivers

b. Ticket scalpers

5: Between 2000 and 2008, the price of oil increased from $30 per barrel to $140 per barrel, and the price of gasoline in the United States rose from about $1.50 per gallon to over $4.00 per gallon. Unlike in the 1970s when oil prices spiked, there were no long lines outside gas stations. Why? a. Government intervened to prevent lines. b. Government intervened to enact gasoline rations. c. There was no price control on gasoline at the time.

c. There was no price control on gasoline at the time.

Binding price ceilings create surpluses (true or false)

false

Who is the price floor meant to protect? (The buyers or the sellers)

the sellers