Price ceilings and price floors

1. How does a free market eliminate a shortage? a. By letting the price fall. b. By letting the price rise. c. By creating quotas. d. By creating a price ceiling.

b

2. When will entrepreneurs be more likely to fill up their pickup trucks with flashlights and drive into a disaster area: when they can sell their flashlights for $5 each or when they can sell them for $40 each? a. $5 b. $40 c. Equal numbers of entrepreneurs will be present at both prices.

b

1. A review of the jargon: Is the minimum wage a "price ceiling" or a "price floor?" a. price ceiling b. price floor

b

1. A review of the jargon: Is rent control a "price ceiling" or a "price floor?" a. price ceiling b. price floor

a

1. On average, should we expect better customer service from a capitalist or a Communist employee? a. Capitalist b. Communist

a

1. The Canadian government has wage controls for medical doctors. To keep things simple, let's assume that they set one wage for all doctors: $100,000 per year. It takes about 6 years to become a general practitioner or a pediatrician, but it takes about 8 or 9 years to become a specialist like a gynecologist, surgeon, or ophthalmologist. What kind of doctor would you want to become under this system? (Note: The actual Canadian system does allow a specialist to earn a bit more than general practitioners, but the difference isn't big enough to matter.) a. Pediatrician b. Surgeon

a

1. When a price ceiling is in place keeping the price below the market price, what's larger: quantity demanded or quantity supplied? a. Quantity demanded. b. Quantity supplied. c. Indeterminate with the given information. d. Neither.

a

2. Business leaders often say that there is a "shortage" of skilled workers, and so they argue that immigrants need to be brought in to do these jobs. For example, an AP article entitled "New York farmers fear a shortage of skilled workers," pointing out that a special U.S. visa program, the H-2A program, "allows employers to hire foreign workers temporarily if they show that they were not able to find U.S. workers for the jobs." (Source: Thompson, Carolyn. May 13, 2008. N.Y. farmers fear a shortage of skilled workers Associated Press.) How do unregulated markets cure a "labor shortage" when there are no immigrants to boost the labor supply? a. Let the price of labor increase. b. Let the price of labor decrease. c. Contract production. d. Expand production.

a

3. Harry is lucky enough to get a rent-controlled apartment for $300 per month. The market rent on such an apartment is $3,000 per month. Harry himself values the apartment at $2,000 per month, and he'd be quite happy with a regular, $2,000 per month New York apartment. If he stays in the apartment, how much consumer surplus does he enjoy? a. $1,700 per month b. $2,100 per month c. $2,400 per month d. Indeterminate given the information.

a

4. If the government forced all bread manufacturers to sell their products at a "fair price" that was half the current, free-market price, what would happen to the quantity supplied of bread? a. quantity supplied decreases. b. quantity supplied increases. c. Indeterminate with the given information.

a

7., who will probably spend more time waiting in line to get scarce, price-controlled goods? Choose one from each pair: a. Fast-food employees who earn $8 per hour b. Lawyers who charge $800 per hour

a

Harry is lucky enough to get a rent-controlled apartment for $300 per month. The market rent on such an apartment is $3,000 per month. Harry himself values the apartment at $2,000 per month, and he'd be quite happy with a regular, $2,000 per month New York apartment. 4. If he illegally subleases his apartment to Sally on the black market for $2,500 per month and instead rents a $2,000 apartment, is he better off or worse off than if he obeyed the law? a. Better off b. Worse off c. Indeterminate given the information.

a

3. If a government decides to make health insurance affordable by requiring all health insurance companies to cut their prices by 30%, what will probably happen to the number of people covered by health insurance? a. More people will be covered because it's cheaper and more people can now afford it. b. Fewer people will be covered because health insurance companies will supply less. c. The number of insured will not change. d. Indeterminate with the given information.

b

3. Imagine that you can hire four low-skilled workers to move dirt with shovels at $5 an hour, or you can hire one skilled worker at $24 an hour to move the same amount of dirt with a skid loader. Who will you hire if the minimum wage increases from $5 per hour to $6.50 per hour? a. 4 low-skilled workers b. 1 high-skilled worker

b

3. In the town of Freedonia, the government declares that all street parking must be free: There can be no parking meters. In an almost identical town of Meterville, parking costs $5 per hour (or $1.25 per 15 minutes). Where will it be easier to find parking: in Freedonia or Meterville? a. Freedonia b. Meterville c. Indeterminate with the given information.

b

4. Suppose the government forced all bread manufacturers to sell their products at a "fair price" that was half the current, free-market price. To keep it simple, assume that people must wait in line to get bread at the controlled price. Would consumer surplus rise, fall, or can't you tell with the information given? a. consumer surplus increases. b. consumer surplus decreases. c. Indeterminate with the given information.

b

5. With these price controls on bread, would you expect bread quality to rise or fall? a. Quality rises b. Quality falls c. Indeterminate with the given information.

b

6. Price controls distribute resources in many unintended ways. In the following cases below, who will probably spend more time waiting in line to get scarce, price-controlled goods? Choose one from each pair: a. Working people b. Retired people

b

9. Which job exists in part because time-sensitive wealthy individuals want to pay someone else to wait in line for them? a. Fast food employees b. Ticket scalpers c. Construction workers d. Truck drivers

b

Equal numbers of entrepreneurs will be present at both prices. 3. In the late 1990s, the city of Santa Monica, California, made it illegal for banks to charge people ATM fees. As you probably know, it's almost always free to use your own bank's ATMs, but there's usually a fee charged when you use another bank's ATM. (Source: The War on ATM Fees, Time, November 29, 1999). As soon as Santa Monica passed this law, Bank of America stopped allowing customers from other banks to use their ATMs: In bank jargon, B of A banned "out-of-network" ATM usage. In fact, this ban only lasted for a few days, after which a judge allowed banks to continue to charge fees while awaiting a full court hearing on the issue. Eventually, the court declared the fee ban illegal under federal law. But let's imagine the effect of a full ban on out-of-network fees. Calculate the exact amount of producer and consumer surplus in the out-of-network ATM market in Santa Monica after the ban. How large is consumer surplus? a. 10 b. 0 c. 15 d. Indeterminate with the given information.

b

In the town of Freedonia, the government declares that all street parking must be free: There can be no parking meters. In an almost identical town of Meterville, parking costs $5 per hour (or $1.25 per 15 minutes). 4. One town will tend to attract shoppers who hate driving around looking for parking. Which one? a. Freedonia b. Meterville

b

In the town of Freedonia, the government declares that all street parking must be free: There can be no parking meters. In an almost identical town of Meterville, parking costs $5 per hour (or $1.25 per 15 minutes). 5. Which town will likely attract shoppers with higher incomes? a. Freedonia b. Meterville

b

who will probably spend more time waiting in line to get scarce, price-controlled goods? 8. Choose one from each pair: a. People with desk jobs b. People who can disappear for a couple of hours during the day

b

1. During a crisis such as Hurricane Katrina, governments often make it illegal to raise the price of emergency items like flashlights and bottled water. In practice, this means that these items get sold on a first-come, first-served basis. If a person has a flashlight that she values at $5, but its price on the black market is $40, what gains from trade are lost if the government shuts down the black market? a. $45 b. $40 c. $35 d. $30 e. Indeterminate with the given information.

c

1. If a government decided to impose price controls on gasoline, what could it do to avoid the time wasted waiting in lines? Though there are several solutions to this problem, only one of the options below is correct. a. Restrict gasoline consumption to high-value uses. b. Ban lines for gasoline. c. Create gasoline rations. d. Ban black markets for gasoline.

c

2. Antibiotics are often given to people with colds (even though they are not useful for that purpose), but they are also used to treat life-threatening infections. If there was a price control on antibiotics, what do you think would happen to the allocation of antibiotics across these two uses? a. It would go to those who need it most. b. It would go to those who need it least. c. It would go to a mix of the two.

c

2. In a rent-controlled apartment, a landlord will likely do which of the following more often: a. Rent more apartments b. Provide more unfurnished apartments c. Discriminate more against applicants d. Allow more renters per room

c

5. Between 2000 and 2008, the price of oil increased from $30 per barrel to $140 per barrel, and the price of gasoline in the United States rose from about $1.50 per gallon to over $4.00 per gallon. Unlike in the 1970s when oil prices spiked, there were no long lines outside gas stations. Why? a. Government intervened to prevent lines. b. Government intervened to enact gasoline rations. c. There was no price control on gasoline at the time.

c

2. Who is impacted most by a change in the minimum wage? a. unionized workers b. senior citizens c. stay-at-home parents d. teenagers

d

4. Suppose you're doing some history research on shoe production in ancient Rome, during the reign of the famous Emperor Diocletian. Your records tell you how many shoes were produced each year in the Roman Empire, but it doesn't tell you the price of shoes. You find a document that says that in the year 301, Emperor Diocletian issued an "edict on prices," but you don't know whether he imposed price ceilings or price floors—your Latin is a little rusty. However, you can clearly tell from the documents that the number of shoes actually sold in markets fell dramatically, and that both potential shoe sellers and potential shoe buyers were unhappy with the edict. With the information given, can you tell whether Diocletian imposed a ceiling or a floor? If so, which is it? (Yes, there really was an edict of Diocletian, and Wikipedia has excellent coverage of ancient Roman history.) a. Price ceiling b. Price floor c. Neither- it was a government shoe ration. d. Indeterminate with the given information.

d