Chapter 5(4)

If the government imposes a price floor on wheat at $5 and agrees to purchase any surpluses, how much will the government be forced to spend?

$15,000,000

Suppose that the equilibrium price of a bike is $250. The government passes a law setting a maximum price of $150 for a bike. As a result of the legislation, and in the absence of a black market, the price of a mountain bike will be

$150.

What will be the amount of government expenditure required if a price floor for corn is set at $4.50 and the government agrees to purchase the amount of disequilibrium?

$202,500

Use the following information to answer the questions that follow. Market for a new hardcover book: Demand: Qd = 325 - 8 P Supply: Qs = -60 + 3 P What would be the equilibrium price for hardcover books? (Hint: set Qd = Qs)

$35

Use the following information to answer the questions that follow. Market for a new hardcover book: Demand: Qd = 325 - 8 P Supply: Qs = -60 + 3 P What would be the equilibrium quantity for hardcover books? (Hint: First solve for P by setting Qd = Qs, then compute Qd or Qs).

$45

Refer to the accompanying figure. At what price would there be the least pressure to form a black market?

$8

Suppose the government decides the Big Mac is an American tradition. To recognize the value of the Big Mac, the government passes legislation making it illegal to sell a Big Mac for less than $8. The equilibrium price of a Big Mac is $4. As a result of the government legislation, and in the absence of a black market, the price of a Big Mac will be

$8

Use the following information to answer the questions that follow. Market for flat-screen TVs: Demand: Qd = 2,600 - 5 P Supply: Qs = -1,000 + 10 P What would be the quantity of excess supply (surplus) if a price floor was set at $300? (Hint: Plug the floor price into P)

1,100.

Use the following information to answer the questions that follow. Market for flat-screen TVs: Demand: Qd = 2,600 - 5 P Supply: Qs = -1,000 + 10 P What would be the equilibrium quantity for flat-screen TVs? (Hint: Remember at equilibrium, Qd = Qs; so, compute P and then solve for Qs or Qd)

1,400.

What is the surplus when the price floor is $1.75 in the market for public transportation?

40,000.

The following table contains the demand schedule and supply schedule for a market for a particular good. Suppose the buyers of the good successfully lobby Congress to impose a price ceiling $1 below the equilibrium price in this market. Price Quantity Demanded Quantity Supplied $0 15 0 $1 13 3 $2 11 6 $3 9 9 $4 7 12 $5 5 15 $6 3 18 Refer to above table. Following the imposition of a price ceiling $1 below the equilibrium price, there will be a shortage of how many units of the good?

5 units.

In the graph above, how many total workers would be unemployed if the government imposed a minimum wage of $9?

6,000

What is the incentive to create a black market when a binding price floor exists?

A black market emerges because sellers need a way to dispose of surplus product.

___________ is a real-life example of a price floor.

A minimum wage law.

Which of the above diagrams illustrate(s) the effect of a decrease in incomes on the market for secondhand clothing?

A only.

Which is a correct statement about a rent control law?

A rent control law is a price ceiling law that makes apartments cheaper to rent but discourages property owners from renting out apartments.

Refer to the figure. At a price floor of $6, this market is experiencing

A surplus.

Refer to above graph. Some policymakers have argued that the government should establish a "living wage," which is another phrase for "minimum wage." A minimum living wage would provide workers a "reasonable" (whatever that is) standard of living in their city or region. If a living wage of $10 per hour is established in the market pictured here, we would expect

All of the above: unemployed workers will increase to 6 million. employment will decrease to 8 million. two million workers will lose their jobs.

If you were a politician, why would you find it difficult to remove a binding price ceiling?

Because it greatly benefits some consumers who are also voters.

Which of the following is an accurate statement about the consequence of a binding price ceiling?

Binding price ceilings encourage the formation of a black market.

Which of the above diagrams illustrate(s) the effect of a governmental subsidy on the market for AIDS research?

C only.

If the local government tells gas stations that they are not allowed to change the price of gas for three weeks during hurricane season, what will be the consequence?

Consumers will be unable to buy all the gas they want at the temporary price ceiling price.

Which of the above diagrams illustrate(s) the effect of an increase in automobile worker wages on the market for automobiles?

D only.

Suppose the government decides the Big Mac is an American tradition. To recognize the value of the Big Mac, the government passes legislation making it illegal sell a Big Mac for less than $8. The equilibrium price of a Big Mac is $4. As a result of the government legislation, there will be

Fewer Big Macs bought and sold than before.

What were the unintended results of the "Cash for Clunkers" government program? (check all that apply)

Higher prices for used parts from junk dealers. Higher used-car prices.

Suppose an employer can hire four low-skilled workers to move dirt with shovels at $5 an hour, or can hire one skilled worker at $24 an hour to move the same amount of dirt with a skid loader. What will the employer do if the minimum wage increases from $5 per hour to $6.50 per hour?

Hire the one skilled worker.

Which of the following is a correct statement about a minimum wage law?

It causes prices to rise as producers pay more for labor.

Suppose that the federal government places a binding price floor on chocolate. To help support the price floor, the government purchases all chocolate that consumers do not buy. If the price floor remains in place for a number of years, what do you expect to happen to the quantity of chocolate demanded by consumers compared to the quantity of chocolate demanded before the price floor?

It will decrease.

Suppose that the federal government places a binding price floor on chocolate. To help support the price floor, the government purchases all chocolate that consumers do not buy. If the price floor remains in place for a number of years, what do you expect to happen to the quantity of chocolate supplied by producers compared to the quantity of chocolate supplied before the price floor?

It will increase.

The market is currently at market equilibrium. If a binding price ceiling of P1 is imposed, by how much would the quantity supplied change?

It would decrease by 18,000 units.

The market is currently at market equilibrium. If a binding price ceiling of P1 is imposed, by how much would the quantity demanded change?

It would increase by 12,000 units.

Do all buyers benefit from a binding price ceiling?

No. A binding price ceiling benefits only some buyers because not all are able to obtain the good in the legal market.

Do all sellers benefit from a binding price floor?

No. A binding price floor benefits only some sellers because not all are able to sell as much as they would like in the legal market.

The "Cash for Clunkers" program, designed by economist Alan Blinder, was a Federal government program carried out under the Obama administration. This program gave people a cash voucher for a new car, if they turned in their used cars to be destroyed. Which panel above illustrates the effect of this program on the market for used cars?

Panel D only.

Which of the following is correct?

Price controls often hurt those they are designed to help.

Which of the following statements is correct?

Price floors and price ceilings do not typically interfere with the process leading to market equilibrium.

In a free, competitive market, what is the rationing mechanism?

Price.

Assume that all fast-food restaurants employ many minimum wage workers. Suppose 20,000 people in Pennsylvania work in fast-food restaurants for the federal minimum wage of $7.25/hour. If the state of Pennsylvania increases its minimum wage to $9.00/hour, who will be better off? Who will be worse off?

Some minimum wage workers will be better off, some minimum wage workers will be worse off, and all fast-food restaurant owners will be worse off.

You are the president of the United States. In an attempt to make prescription drug prices cheaper, you have imposed a binding price ceiling on drugs. What would you expect your critics to say?

The binding price ceiling will increase the likelihood that consumers will obtain needed drugs on the black market.

You are a senator from Kansas who wants to help farmers. You have worked to encourage the passage of a law that would impose a binding price floor on wheat. What would you expect your critics to say?

The binding price floor will cause a surplus of wheat that farmers will be unable to sell.

In some countries, a binding price ceiling is placed on prescription medicines. What would you expect the prescription medicine market to be like in these countries?

The legal maximum price would mean that not all consumers will have access to prescription medicines.

Based on the infographic, what are the minimum wages in Nebraska and Colorado in relation to the federal minimum wage?

The minimum wage in Colorado is higher than the federal minimum wage, while Nebraska's minimum wage is equal to the federal minimum wage.

How would an economist explain a teenager's continued unemployment where there exists a minimum wage?

The minimum wage law made it such that the quantity of labor willing to work at that wage was greater than the quantity of labor demanded at that wage.

Refer to the two panels above. Which panel illustrates the principle of a minimum wage?

The panel on the left.

Refer to the two panels above. Which panel illustrates the principle of a sugar price support by the US Department of Agriculture?

The panel on the right.

One strategy I might use to be elected mayor of a university town is to place a binding price ceiling on rent for student apartments. What will happen if I get elected and am able to pass such a law?

The price ceiling will cause students to sleep in their cars or to move in with their friends because they won't be able to find a place to live.

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,

The quantity demanded of physicals increases and the quantity supplied of physicals decreases.

Refer to the accompanying figure. At the price of the binding price floor, by how much would the quantity supplied change from the market equilibrium?

The quantity supplied would increase by 32,000 units.

Which side of the market is more likely to lobby government for a price floor?

The sellers.

If there is a $60 price ceiling imposed on a textbook, what will be the disequilibrium amount?

There will be a shortage of 800,000 textbooks.

If the price floor for corn is set at $5.00, what amount and type of disequilibrium will be present in the market for corn?

There will be a surplus of 103,000.

If there is a $180 price ceiling imposed on a textbook, what will be the disequilibrium amount?

There will not be a shortage.

If rent control is established at $1,550, what would be the amount of disequilibrium in the apartment market?

There would be a shortage of 28,990 apartments.

If the price ceiling for corn is $2.50, what amount and type of disequilibrium would be present in the market for corn?

There would be a shortage of 61,000.

The accompanying figure describes the market for gasoline in a local community. If the government were to place a price floor at P3, predict the resulting surplus or shortage.

There would be a surplus of 75,000 units.

If a minimum wage is established at $7.50, determine the amount of disequilibrium in the labor market.

There would be a surplus of labor of 20,170,000.

If rent control is established at $1,750, what would be the amount of disequilibrium in the apartment market?

There would be neither a shortage nor a surplus.

Why do government leaders impose price controls?

They are trying to ensure that a social goal is satisfied.

Tina, an economics student, was just named Miss Florida, based in part on her answer to the question of why price gouging laws should be relaxed in that state. Tina won because she gave which of the following answers?

They help poor people buy basic necessities during a time of disaster.

Why are binding price floor laws passed?

They help producers receive higher prices for products sold in the legal market.

Apartment rent control in New York City is an example of:

a binding price ceiling.

In 1992, Hurricane Andrew devastated southern Florida, leaving residents with no electricity for light or refrigeration. Consequently, the price of ice rose 1,000 percent and generators 300 percent. Outraged, the Florida government passed a law prohibiting "price gouging." This law prohibits the sale or rental of essential commodities such as lumber, ice, water or generators at "unconscionable" prices after a hurricane. The law dictates that during a declared state of emergency merchants may not "grossly exceed" the average price at which the commodity was sold in the area within the previous 30 days. This law is an example of:

a price ceiling (excess demand).

Rent control is an example of

a price ceiling.

Setting a price ceiling below the equilibrium price can result in:

a shortage, where the quantity demanded exceeds the quantity supplied.

Suppose that the equilibrium price of a bike is $250. The government passes a law setting a maximum price of $150 for a bike. As a result of the legislation, there will be

a smaller number of mountain bikes sold than before the legislation.

The government has imposed a price control for many agricultural products in an effort to support farmers. In the case of price floor P2 in the accompanying figure, how much of a disequilibrium in quantity exists?

a surplus of 30,000 units.

Farm price supports are an example of price floors in the market for farm products. A binding price support will cause

a surplus of farm products.

If a price floor is imposed at $15 per unit when the equilibrium market price is $12, there will be:

a surplus.

Examine the graph. Many consumers will be unable to buy the good at a price ceiling of $0.50 because of a shortage. However, black market purchases of the good will occur at a price of

above $0.50.

In order for a price floor to be binding, it must be set

above the equilibrium price.

Refer to above graph. Some policymakers have argued that the government should establish a "living wage," which is another phrase for "minimum wage." A minimum living wage would provide workers a "reasonable" (whatever that is) standard of living in their city or region. If a living wage of $10 per hour is established in the market pictured here, we would expect

all of the above. unemployed workers will increase to 6 million. employment will decrease to 8 million. two million workers will lose their jobs.

Suppose that the equilibrium price of a bike is $250. The government passes a law setting a maximum price of $150 for a bike. As a result of the legislation, there will be

an excess demand for bikes.

Suppose the government decides the Big Mac is an American tradition. To recognize the value of the Big Mac, the government passes legislation making it illegal to sell a Big Mac for less than $8. The equilibrium price of a Big Mac is $4. As a result of the government legislation, there will be

an excess supply of Big Macs.

If you were a politician, why would you find it difficult to remove a binding price floor?

because it greatly benefits firms, and they would spend a lot of money to lobby against the law's repeal

If you were a politician, why would you find it difficult to remove a binding price ceiling?

because it greatly benefits some consumers who are also voters.

In order for a price ceiling to be binding, it must be set

below the equilibrium price.

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

ceiling.

Suppose that the equilibrium price of a bike is $250. The government passes a law setting a maximum price of $150 for a bike. As a result of the legislation, the equilibrium quality of bikes will most likely

decline.

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

floor.

Why is it often difficult to remove a binding price floor after it exists?

in general, because sellers benefit from higher prices and would lobby their elected officials to keep the price control

Imagine you find yourself in a heat wave and your air conditioner has broken. Unable to find a new one at the store because of a price gouging law, you purchase an air conditioner on the black market. What role did the price gouging law have?

it increased the incentive of individuals to supply the good on the black market.

Suppose that the federal government places a binding price floor on chocolate. To help support the price floor, the government purchases all chocolate that consumers do not buy. If the price floor remains in place for a number of years, what do you expect to happen to the quantity of chocolate purchased by the government compared to the quantity of chocolate purchased by the government when the price floor is first imposed?

it will increase.

Examine the graph. Sellers who are unable to sell their good at a price floor of $6 may still be able to sell their good on the black market at a price of

less than $6.

The proportion of minimum-wage earners who are in families with incomes below the poverty line is

less than one-third.

A price ceiling is a legally imposed ____ price.

maximum.

A price floor is legally imposed _____ price.

minimum

When policymakers set prices by legal decree, they

obscure the signal that normally guide the allocation of society's resources.

Laws that prohibit price gauging are often politically

popular because consumers do not like having to pay more for a good in times of emergency, but result in product shortages.

Laws that prohibit price gouging are often politically

popular because consumers do not like having to pay more for a good in times of emergency, but result in product shortages.

Many states have laws that limit the maximum amount of interest that a lender can charge a borrower. Such a law is an example of a(n):

price ceiling.

Many local governments use parking meters on crowded downtown streets. However, the parking spaces along the street are typically hard to find because the metered price is often set below the market price. This represents a ___________, which results in a ___________ of parking spots.

price ceiling; shortage.

When government imposes a price ceiling or a price floor on a market,

price no longer serves as a rationing device.

As a politician, you would be more inclined to propose an increase in the minimum wage when you believe that the new minimum wage would:

remain below the equilibrium wage and be nonbinding.

A real-life example of a binding price ceiling is:

rent control.

Refer to figure above. If the government imposes a price ceiling of $2 on this market, then the result is a

shortage of 30 units of the good.

The minimum wage has its greatest impact on the market for

teenage labor.

Which side of the market is more likely to lobby government for a price ceiling?

the buyers.

Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing because

with shortages and waiting lists, they have no incentive to maintain and improve their property.

What is the amount of the shortage or surplus in the market for public transportation when the price ceiling is $1.75?

$0

What is the surplus when the price floor is $0.75 in the market for public transportation?

$0

What is the amount of the shortage or surplus in the market for public transportation when the price ceiling is $1.75?

$0.

At what price level does the apartment market experience its largest shortage?

$1,500