Chapter 7

An effective price floor a) causes a surplus b) causes a shortage c) is set at a price above equilibrium price d) is set at a price below the equilibrium price.

A and C only

A price floor is

A legal minimum on the price at which a good can be sold. Often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price floor. A source of inefficiency in a market.

Which of the following observations would be consistent with the imposition of an effective price ceiling on a market?

A smaller quantity of the good is bought and sold.

A price ceiling will be effective only if it is set

Below the equilibrium price.

A legal maximum on the price at which a good can be sold is called a price.

Ceiling.

Rent ceilings

Create a deadweight. Benefit people who live in rental apartments.

A minimum wage set above the equilibrium wage rate creates

Inefficiency and a deadweight loss.

The minimum wage is an example of a

Price floor

Rent control

Serves as an example of a price ceiling.

If a price ceiling does not have any effect, then

The equilibrium price is above the price ceiling.

If a price floor does not have an effect, then

The equilibrium price is above the price floor.

Suppose the best equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling

The quantity of physicals demanded increase. There is shortage of physicals. The quantity of physicals supplied decreases.

Price controls are usually enacted

When policy makers believe that the market price of a good or service is unfair to buyers or sellers.