MRU 8.4: Price Ceilings: Deadweight Loss

The deadweight loss caused by a price ceiling has two components. What are they? - Lost government revenue and lost gains from trade - Lost consumer surplus and lost producer surplus - Lost consumer surplus and additional producer surplus - Lost gains from trade and the cost of wasteful trades

A: Lost consumer surplus and lost producer surplus

What can be said about the trades that DON'T take place because of a price ceiling? - The buyers would not have been willing to pay a price that sellers would have been willing to accept. - The buyers would have been willing to pay a price that sellers would have been willing to accept. - The sellers would have been willing to accept the controlled price. - The buyers would not have been willing to pay the controlled price.

A: The buyers would have been willing to pay a price that sellers would have been willing to accept.

Consider one of the gallons of gasoline that would be sold in a free market but that is not sold in the presence of a price ceiling. Which of the following is true? - The price sellers require > the controlled price > the price buyers are willing to pay - The price buyers are willing to pay > the price sellers require > the controlled price - The price sellers require > the price buyers are willing to pay > the controlled price - The price buyers are willing to pay > the controlled price > the price sellers require

A: The price buyers are willing to pay > the price sellers require > the controlled price

Which of the following results of a price ceiling is most directly responsible for the deadweight loss caused by a price ceiling? - The price ceiling increases the marginal value of the good. - The price ceiling reduces the quantity traded. - The price ceiling reduces the marginal cost of the good. - The price ceiling increases the quantity traded.

A: The price ceiling reduces the quantity traded.

In a free market equilibrium there are: - unexploited gains from trade. - sometimes wasteful gains from trade. - gains from trade that go neither to the buyer nor to the seller. - no unexploited gains from trade.

A: no unexploited gains from trade.

A price ceiling creates a deadweight loss by: - preventing some mutually beneficial trades from being made. - increasing the quantity above what the market can bear. - causing inefficient trades to take place. - raising the price above the market equilibrium price.

A: preventing some mutually beneficial trades from being made.

With a price ceiling in place, the quantity of units traded is equal to the _______ at the controlled price, which is _______ than the market equilibrium quantity. - quantity supplied; greater - quantity demanded; greater - quantity supplied; less - quantity demanded; less

A: quantity supplied; less

In the presence of a government price control: - some mutually beneficial trades are legal but fail to occur. - some trades that are not beneficial are encouraged. - some trades that are not beneficial are forced to occur. - some mutually beneficial trades are illegal.

A: some mutually beneficial trades are illegal.

A free market maximizes the _______ producer and consumer surplus. - difference between - larger of - smaller of - sum of

A: sum of

"Deadweight loss" is the name given to a situation in which: - gains from trade are transferred from buyers to sellers or vice versa. - there are no unexploited gains from trade. - total gains from trade could have been higher. - total gains had been higher in the past.

A: total gains from trade could have been higher.