Chapter 4 Graded Homework

Critics of the pharmaceutical industry often argue that price ceilings should be imposed on drug manufacturers. If this happened, the quality of drugs would improve. True or False

False

Suppose Congress imposes a price ceiling of $5 per ATM transaction. If the average market-clearing price for an ATM transaction is $2, the price ceiling will not be binding in this instance. True or False

True

Suppose that the average cost of a doctor visit is $100. If the government imposes a price ceiling of $50 on the cost of a doctor visit, there will be: a) an excess demand for doctor visits. b) no change in the number of doctor visits. c) an increase in the equilibrium number of doctor visits. d) an excess supply of doctor visits.

a) an excess demand for doctor visits.

Which is NOT an inefficiency caused by binding price ceilings? a) inefficient allocation of sales among sellers b) wasted resources c) illegal activity d) inefficient allocation to consumers

a) inefficient allocation of sales among sellers

Suppose that a binding price floor is in place in a particular market. If the market is deregulated and the price floor is removed: a) the quality of the good supplied will decrease. b) the quality of the good supplied will improve. c) excess demand will develop. d) the quantity demanded will decrease and the quantity supplied will increase.

a) the quality of the good supplied will decrease.

The amount that consumers are willing to pay for the quota limit quantity is the: a) price ceiling. b) quota rent. c) supply price. d) demand price.

b) quota rent.

The equilibrium point for textbooks is at 30 for $60. At a price ceiling of $40, the market outcome would be a _____ of _____ textbooks. a) shortage; 10 b) shortage; 30 c) surplus; 30 d) surplus; 10

b) shortage; 30

Assuming that U.S. and French wines are substitutes in consumption, if the U.S. government imposes a quota on the amount of French wine allowed into the United States and the quota is set at a quantity below equilibrium, the price of French wine in the United States will _____ while the price of the U.S.-produced wine will _____. a) increase; decrease b) decrease; decrease c) increase; increase d) decrease; increase

c) increase; increase

A price ceiling will have NO effect if: a) it is set below the equilibrium price. b) it creates a shortage. c) it is set above the equilibrium price. d) the equilibrium price is above the price ceiling.

c) it is set above the equilibrium price.

A binding price ceiling will cause a persistent _____, and a binding price floor will cause a persistent _____. a) surplus; surplus b) surplus; shortage c) shortage; surplus d) shortage; shortage

c) shortage; surplus

The system of taxicab medallions in New York City is an example of a: a) price floor. b) price ceiling. c) nonbinding price ceiling. d) quantity control.

d) quantity control.

When the government removes a binding price floor: a) excess supply will develop. b) excess demand will develop. c) quantity demanded will decrease and quantity supplied will increase. d) quantity demanded will increase and quantity supplied will decrease.

d) quantity demanded will increase and quantity supplied will decrease.

The market for apples is in equilibrium at a price of $0.50 per pound. If the government imposes a price floor in the market at a price of $0.40 per pound: a) quantity supplied will increase. b) there will be a shortage of apples. c) quantity demanded will decrease. d) the price floor will not affect the market price or output.

d) the price floor will not affect the market price or output.