HW 6 Price Controls

Rent-control laws dictate

a maximum rent that landlords may charge tenants.

A price ceiling is binding when it is set

below the equilibrium price, causing a shortage

If a price ceiling is binding constraint on a market, then

buyers cannot buy all they want to buy at the price ceiling

Price controls

can generate inequities of their own

Which of the following would be the least likely result of a binding price ceiling imposed on the market for rental cars? - slow replacement of old rental cars with newer ones - free gasoline given to people as an incentive to rent a car - poor gasoline maintenance in rental cars - an accumulation of dirt in the interior of rental cars

free gasoline given to people as an incentive to rent a car

One economist has argued that rent control is "the best way to destroy a city, other than bombing." Why would an economist say this?

he fears that rental control will eliminate the incentive to maintain buildings, leading to a deterioration of the city

If the government removes a binding price ceiling from a market, then the price paid by buyers will

increase, and the quantity sold in the market will increase

Over time, housing shortages caused by rent control

increase, because the demand for and supply of housing are more elastic in the long run

A minimum wage that is set above a market's equilibrium wage will result in

more quantity of labor supplied, or in other words, more laborers willing to work

Which of the following is correct? - price controls never help those they are designed to help - price controls often hurt those they are designed to help - price controls always hurt those they are designed to help - price controls always help those they are designed to help

price controls often hurt those they are designed to help

Which of the following is NOT a function of prices in a market system? - prices send signals to buyers and sellers to help them make rational economic decisions - prices have the crucial job of balancing supply and demand - prices ensure an equal distribution of goods and services among consumers - prices coordinate economic activity

prices ensure an equal distribution of goods and services among consumers

Suppose the equilibrium price of a tube of toothpaste is $2, and the government imposes a price floor of $3 a tube. As a result of the price floor, the

quantity demanded of toothpaste decreases, and the quantity of toothpaste that firms want to supply increases

If a non-binding price floor is imposed on a market, then the

quantity sold in the market will stay the same

When a binding price ceiling is imposed on a market to benefit buyers,

some buyers will not be able to buy any amount of the good

When a binding price floor is imposed on a market to benefit sellers,

some sellers benefit, and some sellers are harmed

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

someone may become better off and someone may become worse off

Other than OPEC, the shortage of gasoline in the U.S. in the 1970s could also be blamed on

the government's policy of maintaining a price ceiling on gasoline

When a binding price floor is imposed on a market,

the quantity demanded at the price floor exceeds the quantity that would have been demanded without the price floor

If a price ceiling is not binding, then

there will be no effect on the market price or quantity sold.

An example of a price floor is

minimum wage