quiz 2

Deadweight loss is defined as: a) the cost to society created by distortions in the market. b) how much revenue a tax generates. c) who pays a tax out of pocket. d) the dollar cost of a tax per unit of sales. e) the benefit from additional government spending.

a

If a price ceiling is imposed at $15 per unit when the equilibrium market price is $12, there will be: a. no surplus or shortage. b. a surplus. c. a shortage. d. a downward pressure on prices. e. an upward pressure on prices.

a

The market is currently at market equilibrium. If a binding price ceiling of P1 is imposed, by how much would the quantity demanded change? a. It would increase by 12,000 units. b. It would decrease by 30,500 units. c. It would decrease by 12,000 units. d. It would increase by 30,500 units. e. It would increase by 30,000 units.

a

According to the law of demand, all other things being equal, a) the quantity demanded falls when the price falls, and the quantity demanded rises when the price rises. b) the quantity demanded falls when the price rises, and the quantity demanded rises when the price falls. c) the demand falls when the price falls, and the demand rises when the price rises. d) the demand falls when the price rises, and the demand rises when the price falls. e) price and quantity are always positively correlated.

b

If the cost of flour increases from $3 to $5 a bag, you could predict the supply curve for bagels to: a. shift to the right. b. shift to the left. c. become steeper. d. become flatter. e. increase.

b

Setting a price ceiling below the equilibrium price can result in: a. a surplus, where the quantity demanded exceeds the quantity supplied. b. a shortage, where the quantity demanded exceeds the quantity supplied. c. a surplus, where the quantity supplied exceeds the quantity demanded. d. a shortage, where the quantity supplied exceeds the quantity demanded. e. no impact on the quantity demanded or on the quantity supplied.

b

What would be the quantity demanded if a price ceiling is set at $150? a. 500 b. 1,850 c. 240 d. 1,350 e. 260

b

Which of the following is an accurate statement about the consequence of a binding price ceiling? a. Binding price ceilings do not allow consumers to pay a lower price for the product in the legal market. b. Binding price ceilings encourage the formation of a black market. c. Binding price ceilings discourage the formation of a black market. d. Binding price ceilings create a surplus of the product. e. Binding price ceilings cause consumers to purchase more of the product in the legal market.

b

If the price ceiling for corn is $2.50, what amount and type of disequilibrium would be present in the market for corn? a. There would be neither a shortage nor a surplus. b. There would be a surplus of 61,000. c. There would be a shortage of 61,000. d. There would be a shortage of 186,000. e. There would be a shortage of 125,000.

c

The price of good X increases by 25%, causing the quantity consumed of good Y to decrease by 10%. If everything else is held constant in the economy, we can say with certainty that good X and good Y are: a) substitutes. b) inferior. c) complements. d) normal. e) unrelated.

c

When a tax is imposed on some good, what usually happens to consumer and producer surplus? a) They both increase. b) They both fall to zero. c) They both decrease. d) Consumer surplus increases and producer surplus decreases. e) Consumer surplus decreases and producer surplus increases.

c

Why does a shortage that occurs under a binding price ceiling increase over time? a. Demand becomes more elastic. b. Demand becomes more inelastic. c. Demand and supply both become more elastic. d. Demand and supply both become more inelastic. e. Demand becomes more elastic, but supply becomes more inelastic.

c

Why does a surplus exist under a binding price floor? a. It encourages sellers to produce less of the product. b. It encourages buyers to purchase more of the product. c. It makes the price so high that the quantity supplied exceeds the quantity demanded in the legal market. d. It makes the price so low that the quantity demanded exceeds the quantity supplied on the legal market. e. It discourages sellers from increasing the quality of the product they sell, which, in turn, increases the quantity demanded.

c

Why is raising the minimum wage generally ineffective? a. Most employers purchase labor on the black market, where the binding price floor is not present. b. The minimum wage is an amount suggested by the government, and employers are under no obligation to pay their employees the suggested basic wage. c. The minimum wage is usually set below the prevailing equilibrium wage and is frequently nonbinding. d. Employees are often unconcerned with their wages and care more about the benefits that come with the job. e. Most employees who hold low-wage jobs work in the black market, where the binding price floor doesn't exist.

c

A binding price ceiling will have the following consequences: a. There will be downward pressure on prices until quantity demanded equals quantity supplied. b. There will be upward pressure on prices until quantity demanded equals quantity supplied. c. There are no consequences to a binding price ceiling. d. The quantity demanded will always exceed the quantity supplied. e. The quantity demanded will always be smaller than the quantity supplied.

d

Bob is willing to pay $65 for a new pair of shoes. Bill is willing to pay $50 for the same shoes. The shoes have a price of $45. What is the total consumer surplus for Bob and Bill? a) $15 b) $20 c) $5 d) $25 e) $35

d

If a good is subject to a binding price ceiling and you purchase it on the black market, what do you expect to happen to the price over time? a. The black market price will rise over time as the supply curve becomes more elastic and the demand curve becomes more inelastic. b. The black market price will fall over time as both the supply and demand curves become more inelastic. c. The black market price will rise over time as the demand curve becomes more elastic and the supply curve becomes more inelastic. d. The black market price will fall over time as both the supply and demand curves become more elastic. e. The black market price will not change over time.

d

In the long run, both supply and demand tend to become more elastic. This suggests that, in the long run, the: a) deadweight loss from a tax will be less than it is in the short run. b) deadweight loss will be zero. c) government will likely reduce tax rates. d) tax revenue will be lower than it is in the short run. e) tax revenue will be higher than it is in the short run.

d

The government has imposed a price control for many agricultural products in an effort to support farmers. In the case of price floor P2 in the accompanying figure, how much of a disequilibrium in quantity exists? a. a shortage of 30,000 units b. a surplus of 120,000 units c. 30,000 units d. a surplus of 30,000 units e. an excess of $3

d

What is a black market? a. It is an illegal market that emerges when binding and nonbinding price controls are in place. b. It is an illegal market that emerges when binding price ceilings are in place. c. It is an illegal market that emerges when binding price floors are in place. d. It is an illegal market that emerges when only binding price ceilings and binding price floors are in place. e. It is an illegal market that emerges when no price controls are present.

d

When both supply and demand shift to the right: a. equilibrium price always rises b. equilibrium price always falls c. equilibrium quantity always falls d. equilibrium quantity always rises e. equilibrium quantity is indeterminate

d

When the demand curve shifts to the right and the supply curve is held constant, a. the equilibrium price and quantity decrease. b. the equilibrium price increases, and the equilibrium quantity decreases. c. the equilibrium price decreases, and the equilibrium quantity increases. d. the equilibrium price and quantity increase. e. you see a movement along the demand curve.

d

Which of the following is both a shift in supply and a shift in demand? a. the number of firms in an industry b. tastes and preferences c. income changes d. expectations of future prices e. the number of buyers

d

Why are binding price floor laws passed? a. They make goods less expensive. b. They make goods available to the largest number of customers. c. They encourage producers to produce goods in the most cost-efficient fashion. d. They help producers receive higher prices for products sold in the legal market. e. They discourage the formation of illegal black markets.

d

In a market if the price is above the equilibrium price, would there be a shortage or surplus?

surplus