Chapter 8 practice questions

An employer is willing to hire Alice at up to $10 per hour, Bob at up to $6 per hour, and Cindy at up to $5 per hour. In a free market, the equilibrium wage is $4 per hour. If the government enacts a minimum wage of $7, who receives a higher wage? A. Alice only B. Alice and Bob only C. Bob and Cindy only D. Alice, Bob, and Cindy E. None of the above

A

Before the 1970s, regulations imposed a price floor on all airlines flying within the United States. Which of the following was a predictable consequence of imposing a price floor? A. Airlines created lavish amenities for customers like fancy meals and wide seats. B. Airlines chronically ran out of seats on their flights. C. Airlines stopped offering frequent-flyer clubs. D. Airlines provided narrow, uncomfortable seats and eliminated free food. E. Discount, no-frills airlines arose to compete with established, luxurious airlines

A

Jacuzzi tubs have an equilibrium price of $2000, and the government imposes a price ceiling of $1500. Which of the following would worsen the resulting shortage? A. Jacuzzi tubs become more popular because of a celebrity endorsement. B. The price of non-Jacuzzi tubs falls. C. The components used to make Jacuzzi tubs become cheaper. D. Scientists discover that sitting in Jacuzzi tubs increases your chances of sterility. E. The government raises the price ceiling to $1700

A

When oil had a price ceiling in 1972-1973, swimming pools in California were heated, but homes in New Jersey were cold. This was an example of... A. poorly-targeted benefits caused by price ceilings. B. an inefficiency caused by speculators. C. waste caused by monopoly oil companies. D. income inequality that distorts consumption patterns. E. an excess supply of oil caused by the business cycle.

A

Which of the following is a predicted outcome of a minimum wage? A. Lower employment among low-skilled workers B. Lower employment among high-skilled workers C. Shortage of workers D. (A) and (C) are correct. E. (B) and (C) are correct.

A

. What is the difference between a price ceiling and a price floor?

A price ceiling is a maximum legal price, and a price floor is a minimum legal price

. Vietnam's foreign minister once said, "The Americans couldn't destroy Hanoi, but we have destroyed our city with very low rents." How could low rents destroy housing? A. Rent controls allowed tenants to have enough money to pay for weapons and bombs. B. Rent controls encouraged landlords to let their housing fall into a state of disrepair. C. The government had not enacted proper housing codes in Hanoi. D. Low rents created a small tax base, which provided insufficient funding for government services. E. Rent controls encouraged too many people to move into the city, worsening the living conditions.

B

Upon taking office in 1980, President Reagan eliminated all price ceilings on gasoline. This... A. led to permanently higher gasoline prices. B. eliminated gas shortages. C. led to chaos because gas stations did not know what price to charge for gasoline. D. caused the price of gas to increase so dramatically that no one could afford to buy it. E. did not eliminate gas shortages until the government enacted strict fuel-efficiency standards on all cars

B

In the 1980s, the federal government allowed several New England states to place a price floor on dairy products. Which of the following was a predictable consequence of imposing a price floor? A. Long lines formed at grocery stories as New England consumers were unable to find enough dairy products. B. Grocery stories began mandating the bundling of dairy products with over-priced products that were not covered by the price floor.. C. New England dairy farmers had millions of pounds of surplus dairy products. D. More dairy products were sold after the price floor was enacted. E. Both (A) and (B) are correct

C

The equilibrium price of a doctor's exam is $200. If the government imposes a price ceiling of $100, then... A. the demand curve shifts to the right. B. the supply curve shifts to the left. C. the quantity demanded becomes larger than the quantity supplied. D. the quantity supplied becomes larger than the quantity demanded. E. the number of routine exams performed rises.

C

Which of the following is an example of a price floor that causes a surplus? A. Rent controls B. Setting a maximum legal price of $1.00 when the equilibrium price is $1.80 C. Minimum wage D. All of the above

C

Which of the following statements are true? A. The minimum wage exists under current law, but wage subsidies do not. B. The minimum wage is more effective than wage subsidies at reducing poverty. C. The minimum wage is more likely than wage subsidies to reduce employment of low-skilled workers. D. (A) and (B) are correct. E. (A) and (C) are correct

C

Economists have several criticisms of the minimum wage. Which of the following is NOT one of the criticisms? A. The minimum wage encourages illegal payments to employers. B. The minimum wage prevents some low-skilled workers from getting work experience. C. The minimum wage contributes to the problem of unemployment. D. The minimum wage fails to raise the legal wage of a low-skilled worker

D

In the low-skilled labor market, the equilibrium wage is $3. The government enacts a minimum wage of $5. The following year, it raises the minimum wage to $10. Which of the following is a predicted outcome? A. Unemployment rises. B. Quantity of labor supplied rises. C. Quantity of labor demanded rises. D. (A) and (B) are correct. E. (B) and (C) are correct.

D

The equilibrium rent for apartments is $1000 per month, and the government imposes rent controls of $250. Which of the following is NOT a predicted outcome of the rent controls? A. There will be a shortage of housing. B. Landlords will discriminate among apartment renters. C. Potential tenants will offer bribes to get the apartment. D. The quality of apartments will improve. E. There will be long lines of potential tenants waiting for apartments.

D

What is a difference between price floors and subsidies? A. Price floors cause shortages; subsidies cause surpluses. B. Price floors cause surpluses; subsidies cause shortages. C. Price floors cause shortages; subsidies cause neither shortages nor surpluses. D. Price floors cause surpluses; subsidies cause neither shortages nor surpluses

D

Which of the following statements about price floors is correct? A. When the price floor is below the equilibrium price, there will be a shortage. B. When the price floor is below the equilibrium price, there will be a surplus. C. When the price floor is above the equilibrium price, there will be a shortage. D. When the price floor is above the equilibrium price, there will be a surplus.

D

. When the government makes it illegal to raise prices during a natural disaster, which of the following is NOT likely to happen? A. Black markets B. Additional payments to sellers C. Favoritism D. Long lines of buyers E. Surplus

E

A ban on selling kidneys is equivalent to...

a price ceiling at zero dollars

For a price ceiling to cause a shortage, the government must set it...

below the equilibrium price

The chronic shortages of goods in the former Soviet Union were...

beneficial to the political elite who could trade their wealth and favors for scarce goods

When a market has a price ceiling, bribery is a method of...

bringing the total price of a good closer to the amount the buyer is willing to pay

Price ceilings are usually enacted...

when policymakers believe that the equilibrium price of a good or service is too high