Exam 3 (9)
Ben is willing to work for $4/hour and an employer is willing to hire Ben for $7/hour. Which statements is TRUE?
A minimum wage of $7.50/hour would prevent this mutually beneficial exchange.
Which observation would be consistent with the impact of price ceilings?
Newspapers switch to a smaller font size in order to decrease bulk.
Which is the MOST correct statement about the impact of rent controls?
The short-run supply curve for apartments is inelastic, so rent controls create smaller shortages in the short run than in the long run.
At a price ceiling of $6 per sheet of drywall, quantity demanded is 100 and quantity supplied is 75. What will happen in the drywall market if there is an increased demand for drywall in the construction industry?
The shortage of drywall will increase above 25 units.
If a seller facing excess demand is unable to raise the price of the good due to a price ceiling, a likely result will be:
a decrease in the quality of the product.
The Edict on Maximum Prices, established by the Roman Emperor Diocletian, created price ceilings on various jobs and goods in a failed effort to curb inflation. For example, legal pay for a farm laborer could be no more than 10.8¢ a day (payment set in modern currency). If the market rate of farm labor was 12¢ a day, which would be a plausible consequence of this law?
a laborer would work less hard than he otherwise would
A price floor is:
a minimum price allowed by law.
A shortage results when:
a price ceiling is imposed.
For a price floor to prevent market forces from finding the equilibrium price, it must be set:
above the equilibrium price, causing a market surplus.
Rent controls are:
an inefficient way to help the poor in raising their standard of living.
Because rent controls on apartments reduce profits:
apartment managers will give less consideration to renters' complaints.
Economists call the maximum legal price a price ceiling because the price:
cannot legally go higher than the ceiling.
A legal maximum price at which a good can be sold is a price:
ceiling
When the maximum legal price is below the market price we say that there is a price:
ceiling.
Which would NOT happen as the result of a price floor?
decreases in product quality
In Puerto Rico in 1938, the market wage was 3¢ to 4¢ per hour when Congress passed a law raising it to 25¢ per hour. Workers in Puerto Rico were:
devastated.
Which would MOST LIKELY result after setting a price ceiling on automobiles?
fewer safety features
Over time, housing shortages caused by rent control __ because the supply of housing is __ elastic in the long run.
increase; more
A price ceiling is a(n):
legally established maximum price that can be charged for a good.
New housing takes some time to build, so rent control creates larger shortages in the:
long run than in the short run because long-run supply is more elastic.
If an American teenager will work for $5 an hour and an employer is willing to pay that wage, but the minimum wage is $7.25 an hour and the employer is not willing to pay that much, the teenager goes unemployed and the market experiences:
lost gains from trade.
Under rent control, tenants can expect:
lower rent and lower-quality housing.
Price ceilings would create all of the following effects EXCEPT:
maximum gains from trade.
The influence of the minimum wage in the American economy is very small because MOST workers earn:
more than the minimum wage.
Because of government price controls, a business must now sell soft-serve ice cream at half its original price. This business might respond by:
offering smaller servings of ice cream.,,skimping on toppings of nuts, fudge sauce, and cherries.,,reducing hours of operation.
A rent control is a regulation that:
prevents rents from rising to equilibrium levels.
In situations of excess demand, sellers might lower quality when they are unable to raise prices because they wish to:
raise their profit levels.
How can sellers increase profits when they face a price ceiling?
reduce the quality of the product and provide less customer service
Price ceilings reduce quality because:
sellers facing excess demand cannot raise prices to increase profit.
The presence of price floors in a market usually is an indication that:
sellers of the good or service outnumber the buyers.
A price ceiling creates a ____ when it is set ____.
shortage; below the equilibrium price
Price ceilings create five important effects:
shortages, reductions in product quality, wasteful lineups, a loss from gains to trade, and a misallocation of resources.
Which statement is NOT an effect of a price ceiling?
surpluses
The price controls of the early 1970s caused:
the disappearance of the full-service gas station.
Price ceilings do not have much effect:
when market prices are at or below the ceiling.