Macroeconomics Chapter 4

Rent controls tend to cause persistent imbalances in the market for housing because a) Quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage. b) Quantity demanded exceeds quantity supplied but price cannot fall to remove the surplus. c) Quantity supplied exceeds quantity demanded but price cannot rise to remove the shortage. d) Quantity supplied exceeds quantity demanded but price cannot fall to remove the surplus.

a) Quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage.

Suppose the market equilibrium price of corn is $5 per bushel, and the government sets a price ceiling of $4 per bushel. What is the most likely result of this action? a) There will be a shortage of corn. b) There will be a surplus of corn. c) There will be a decrease in the quantity of corn demanded as the result of the price ceiling. d) There will be an increase in the quantity of corn supplied as the result of the price ceiling.

a) There will be a shortage of corn.

Price controls will tend to cause misallocation of resources because a) production (or opportunity) cost no longer corresponds to market price. b) people are unable to determine their preferences at the high or low price. c) producers no longer have incentive to be profitable. d) consumers no longer have incentive to spend their income efficiently.

a) production (or opportunity) cost no longer corresponds to market price.

Suppose the market equilibrium price of wheat is $5 per bushel, and the government sets a price floor of $7 per bushel to aid growers. What is the most likely result of this action? a) There will be a shortage of wheat. b) There will be a surplus of wheat. c) There will be an increase in the quantity of wheat demanded as the result of the price floor. d) There will be a decrease in the quantity of wheat supplied as the result of the price floor.

b) There will be a surplus of wheat.

When several hurricanes hit Florida in 2004, a number of local governments imposed price controls that prevented sellers from raising their prices for badly needed products like plywood and generators. In the areas where the controls were imposed, they resulted in a) an expanded availability of these badly needed products. b) a reduced availability of these badly needed products. c) an increase in the speed with which people recovered from the hurricanes. d) a more efficient allocation of these goods for which price controls were in effect.

b) a reduced availability of these badly needed products.

Which of the following is the most likely outcome of minimum wage laws? a) an increase in both the quantity of labor supplied by workers and the quantity of labor demanded by firms b) an increase in the quantity of labor supplied by workers and a decrease in the quantity of labor demanded by firms c) a decrease in the quantity of labor supplied by workers and an increase in the quantity of labor demanded by firms d) a decrease in both the quantity of labor supplied by workers and the quantity of labor demanded by firms

b) an increase in the quantity of labor supplied by workers and a decrease in the quantity of labor demanded by firms

Under rent control, tenants can expect a) lower rent and higher quality housing. b) lower rent and lower quality housing. c) higher rent and a shortage of rental housing. d) higher rent and a surplus of rental housing.

b) lower rent and lower quality housing.

The market pricing system corrects an excess supply by a) raising the product price and increasing producer profits. b) lowering the product price and decreasing producer profits. c) raising the product price and decreasing producer profits. d) lowering the product price and increasing producer profits.

b) lowering the product price and decreasing producer profits.

If a government-imposed price floor legally sets the price of milk above market equilibrium, which of the following will most likely happen? a) The quantity of milk demanded will increase. b) The quantity of milk supplied will decrease. c) There will be a surplus of milk. d) There will be a shortage of milk.

c) There will be a surplus of milk.

When policymakers impose price controls, they a) are usually following the advice of mainstream economists. b) usually improve the efficiency of economic activity. c) distort the signals that normally guide the allocation of resources. d) demonstrate a willingness to sacrifice equity in order to improve efficiency.

c) distort the signals that normally guide the allocation of resources.

After a natural disaster, such as a hurricane, the increased demand for certain items (like lumber, electric generators, and chainsaws) causes their prices to rise. These higher prices a) discourage the flow of these items into the area. b) encourage consumers to purchase the items even if they do not plan to use them. c) help to direct the items toward their highest valued uses. d) do all of the above.

c) help to direct the items toward their highest valued uses.

In a market economy, which of the following would most likely cause a prolonged grain surplus? a) a decrease in the demand for grain b) an increase in the supply of grain c) imposition of a price floor above the equilibrium price of grain d) imposition of a price ceiling below the equilibrium price of grain

c) imposition of a price floor above the equilibrium price of grain

When a shortage of a good is present due to a price ceiling, a) the amount supplied will be greater than the amount demanded. b) the quality of the good will generally improve. c) non-price factors, such as discrimination or waiting in line, will play a greater role in the allocation of the good. d) the demand for the product will increase and, thereby, eliminate the shortage.

c) non-price factors, such as discrimination or waiting in line, will play a greater role in the allocation of the good.

Suppose the 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, a) the demand curve for physicals shifts to the right. b) the supply curve for physicals shifts to the left. c) the quantity demanded of physicals increases and the quantity supplied of physicals decreases. d) the number of physicals performed will increase.

c) the quantity demanded of physicals increases and the quantity supplied of physicals decreases.

Which of the following about minimum wage is true? a) Most minimum wage workers are employed more than 40 hours per week. b) Economic analysis indicates an increase in the minimum wage would increase the training opportunities available to inexperienced workers. c) Most minimum wage workers are heads of families with incomes below the poverty level. d) Most minimum wage workers are employed part-time, and they are often members of a household with an income well above the poverty level.

d) Most minimum wage workers are employed part-time, and they are often members of a household with an income well above the poverty level.

If a government imposed price ceiling legally sets the price of beef below market equilibrium, which of the following will most likely happen? a) The quantity of beef demanded will decrease. b) The quantity of beef supplied will increase. c) There will be a surplus of beef. d) There will be a shortage of beef.

d) There will be a shortage of beef.

Economists have argued that rent control is "the best way to destroy a city, other than bombing." Why would economists say this? a) They anticipate that low rents will cause low-income people to move into the city, reducing the quality of life for other people. b) They anticipate that rent control will benefit landlords at the expense of tenants, increasing inequality in the city. c) They anticipate that rent controls will cause a construction boom, which will make the city crowded and more polluted. d) They anticipate that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city.

d) They anticipate that rent control will eliminate the incentive to maintain buildings, leading to a deterioration of the city.

If an increase in the government-imposed minimum wage pushes the price (wage) of unskilled labor above market equilibrium, which of the following will most likely occur in the unskilled labor market? a) an increase in quantity of unskilled labor demanded b) a decrease in the quantity of unskilled labor supplied c) a shortage of unskilled labor d) a surplus of unskilled labor (unemployment)

d) a surplus of unskilled labor (unemployment)

A price ceiling that sets the price of a good below market equilibrium will cause a) an increase in quantity demanded of the good. b) a decrease in quantity supplied of the good. c) a shortage of the good. d) all of the above.

d) all of the above.

Suppose that the minimum wage was increased to $10 per hour. Which of the following would be most likely to result from the minimum wage increase? a) an increase in the employment of low-skill workers previously employed at wage rates of less than $10 per hour b) an increase in the number of jobs providing low-skill workers with on-the-job training c) a reduction in the number of teenagers unemployed d) an increase in the demand for high-skill workers providing services that are a good substitute for those whose wages were pushed up by the higher minimum wage

d) an increase in the demand for high-skill workers providing services that are a good substitute for those whose wages were pushed up by the higher minimum wage