Econ 201 Exam 2; first set

Which of the following is a major disadvantage of setting the price of a good below equilibrium and using waiting in line rather than price to ration the good?

Both waiting in line and higher prices are costly to consumers, but unlike the payment of a higher price, waiting in line does not provide suppliers with an incentive to expand future output.

GRAPH: Given the demand and supply conditions shown in Figure 4-2, if the government imposes a price ceiling of a, indicate the quantity consumers would like to buy and the amount producers would be willing to supply.

Consumers would want to buy t; producers would be willing to sell r.

Which of the following statements is true?

In both black markets and legal markets, supply and demand determine price.

Which of the following statements about rent control in New York City is accurate?

Many well-to-do people live in rent-controlled apartments.

Rent controls tend to cause persistent imbalances in the market for housing because

Quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage.

Other things constant, how will a decrease in the wages of teenagers affect the market for fast food hamburgers?

The supply of fast food hamburgers will increase, leading to a reduction in the price of hamburgers.

Suppose the market equilibrium price of corn is $5 per bushel, and the government sets a price ceiling of $4 per bushel. What is the most likely result of this action?

There will be a shortage of corn.

Which of the following is the most likely result of an increase in the minimum wage?

a decrease in the employment of unskilled workers

Other things constant, if a labor union is able to successfully increase the wages of autoworkers, there will be

a decrease in the supply of automobiles causing the price of automobiles to rise.

Refer to Figure 4-18. In this market, which of the following price controls would be binding?

a price ceiling of $2.00, and it would cause a shortage

Which of the following would tend to increase the price of lumber?

an increase in the demand for newly constructed homes

Which of the following would tend to increase the wage of coal miners?

an increase in the price of oil, a substitute for coal

An increase in the number of students graduating with a major in engineering would result in

an increase in the supply of engineers that would decrease the wage of engineers and increase the number employed.

The more elastic the supply of a product, the more likely it is that the

burden of a tax on the product will fall on buyers.

Other things constant, a decrease in the demand for computers will

decrease the demand for computer manufacturing workers.

Suppose that a tax is placed on textbooks. If the buyers end up bearing most of the tax burden, this indicates that the

demand is more inelastic than the supply.

Taxes create deadweight losses because they

distort incentives.

GRAPH: Refer to Figure 4-16. Some policymakers have argued that the government should establish a "living wage." A living wage would provide workers a reasonable standard of living in their city or region. If a living wage of $10 per hour is established in the market pictured here, we would expect

employment will decrease to 8 million.

After a natural disaster, such as a hurricane, the increased demand for certain items (like lumber, electric generators, and chainsaws) causes their prices to rise. These higher prices

help to direct the items toward their highest valued uses.

Because of price controls in the former Soviet Union, people often waited in long lines for food and other necessities. Modern economic theory would indicate that, relative to price rationing, waiting in line is

less efficient because the time spent waiting in line imposes an opportunity cost on the buyer that does not generate revenue for the seller.

The market pricing system corrects an excess supply by

lowering the product price and decreasing producer profits.

When a price ceiling prevents a higher market price from rationing a good,

non-price factors will play a more important role in the rationing process.

f there was an increase in the excise tax imposed on beer suppliers, what would be the effect on the equilibrium price and quantity of beer?

price increases; quantity decreases

When a price floor is above the equilibrium price,

quantity supplied will exceed quantity demanded, so there will be a surplus.

A deadweight loss results from the imposition of a tax on a good because the tax

reduces the quantity of exchanges between buyers and sellers.

Rent control applies to about two-thirds of the private rental housing in New York City. Economic theory suggests that the below-equilibrium prices established by rent controls would

result in poor service and quality deterioration of many rental units.

Suppose the demand curve for a good is highly elastic and the supply curve is highly inelastic. If the government taxes this good,

sellers will bear a larger share of the tax burden.

Refer to Figure 4-18. If the government imposes a price ceiling of $2.00 in this market, the result is a

shortage of 50 units of the good.

The large amount of violence associated with the current drug trade is mostly caused by

the fact that drug markets must operate outside the normal legal system.

When a government subsidy is granted to the sellers of a product, buyers can end up capturing some of the benefit because

the market price of the product will fall in response to the subsidy.

Suppose the equilibrium price of a physical examination ("physical") by a doctor is $200, and the government imposes a price ceiling of $150 per physical. As a result of the price ceiling,

the quantity demanded of physicals increases and the quantity supplied of physicals decreases.

Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing because

with shortages and waiting lists, they have no incentive to maintain and improve their property.