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
