ECN 104 Lecture Notes - Lecture 6: Price Ceiling, Price Floor, Price Controls

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14 Mar 2017

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The government can make buyers or sellers pay a specific amount on each unit bought/sold. Price ceiling: a legal maximum on the price of a good or service ex. Price floor: a legal minimum on the price of a good or service ex. Government policies that alter the private market outcome. We will use the supply/demand model to see how each policy affects the market outcome (the price buyers pay, the p(cid:396)i(cid:272)e selle(cid:396)s (cid:396)e(cid:272)ei(cid:448)e, a(cid:374)d e(cid:395)"(cid:373) (cid:395)ua(cid:374)tit(cid:455)(cid:895) Another of the 10 principles of economics is that governments can sometimes improve market outcomes. Price controls are often aimed at helping the poor. Rent-control laws try to make housing affordable for everyone. Minimum-wage laws try to help people escape poverty. A p(cid:396)i(cid:272)e (cid:272)eili(cid:374)g a(cid:271)o(cid:448)e the e(cid:395)"(cid:373) p(cid:396)i(cid:272)e is not binding it has no effect on the market outcome. The e(cid:395)"(cid:373) p(cid:396)i(cid:272)e (cid:894)(cid:1004)(cid:1004)(cid:895) is a(cid:271)o(cid:448)e the (cid:272)eili(cid:374)g a(cid:374)d the(cid:396)efo(cid:396)e illegal. The (cid:272)eili(cid:374)g is a binding (cid:272)o(cid:374)st(cid:396)ai(cid:374)t o(cid:374) the price, causes a shortage.

Related Questions

Question 1

The shortage in apartments causes by rent control is worse...

		In the long-run, because the long-run supply is more elastic.
		In the long-run, because the long-run supply is less elastic.
		In the short-run, because the short-run supply is more elastic.
		In the short-run, because the short-run supply is less elastic.

2 points

Question 2

Airline regulation of the 1970s produced a similar result to which of the following government interventions?

		Communism
		Rent control laws
		The Affordable Care Act
		Minimum wage laws

2 points

Question 3

What is a price floor?

		A maximum price allowed by law.
		A minimum price allowed by law.
		A maximum price consumers are willing to pay.
		A minimum price consumers are willing to pay.

2 points

Question 4

In 1938, Congress set the first minimum wage at $0.25 per hour. While this was a modest price floor for the country, it was a very large increase for what US territory which was not exempt from the law?

		Arizona
		Puerto Rico
		Cuba
		Hawaii

2 points

Question 5

Which of the following is a possible effect of a price ceiling?

		A surplus of the good.
		Increases in product quality.
		Increased gains from trade.
		People will waste time in lines waiting to purchase the good.

2 points

Question 6

Which of the following is a possible effect of a price floor?

		Decreases in product quality.
		The quantity supplied exceeds the quantity demanded.
		Increased gains from trade.
		A shortage of the good.

2 points

Question 7

Which of the following is a possible effect of a price ceiling?

		Increased gains from trade.
		Increases in product quality.
		A surplus of the good.
		The quantity demanded exceeds the quantity supplied.

1.) An excise tax on a good typically reduces the net price received by the seller. (TRUE/FALSE)

2.) The burden of an excise tax on gasoline falls entirely on consumers of gasoline. (TRUE/FALSE)

3.) Rent controls are one of the few examples of a price floor in market economies. (TRUE/FALSE)

4.) Imposing a price ceiling below the equilibrium price of a good often leads to_____.

A) A greater supply of the good

B) A black market for the good

C) A rightward shift of the supply curve for the good.

D) A leftward shift of the demand curve for the good.

E) All of these

5.) Which of the following is true of price floors and ceilings?

A) Lead to the same price and quantity as in competitive market.

B) Lead to technical efficiency

C) Cause the demand curve to shift left

D) Usually result from government intervention

E) Cause the supply curve to shift right.

6.) Price ceilings often lead to black markets. (TRUE/FALSE)

7.) When minimum wage is above the equilibrium wage what occurs?

A) There will be a shortage of labor

B) There will be no effect on the number of people employed

C) There will be an increase in unemployment rate

D) There will be a decrease in unemployment rate

8.) An excise tax on a good typically reduces the price paid by the consumer (TRUE/FALSE)

9.) If a price ceiling is below the equilibrium price is imposed on a market, it will cause the quantity demanded to rise and the quantity supplied to fall. (TRUE/FALSE)

10.) Price floors often lead to black markets. (TRUE/FALSE)

11.) If an excise tax is imposed on restaurant meals what occurs?

A) Fewer meals will be produced and sold

B) More meals will be produced and sold

C) Market price of the meals will fall

D) Government tax revenue will fall.

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Question 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?

		$30
		$35
		$40
		Indeterminant with the given information.

2 points

Question 2

Which of the following is an example of a price floor?

		A sale price with a limit on the quantity you can purchase.
		Rent-controlled apartments
		Predatory pricing designed to put a competitor out of business.
		The minimum wage

2 points

Question 3

Airline regulation of the 1970s produced a similar result to which of the following government interventions?

		The Affordable Care Act
		Minimum wage laws
		Rent control laws
		Communism

2 points

Question 4

Which of the following is a possible effect of a price ceiling?

		A surplus of the good.
		Increases in product quality.
		Increased gains from trade.
		People will waste time in lines waiting to purchase the good.

2 points

Question 5

What is a price ceiling?

		A minimum price consumers are willing to pay.
		A minimum price allowed by law.
		A maximum price allowed by law.
		A maximum price consumers are willing to pay.

2 points

Question 6

Why are the long lines generated by a shortage worse than paying a higher price in money?

		It is not better or worse. Paying in time and paying in money are essentially the same in a market economy.
		Paying with time reduces the value of money, and prevents valuable trades from occurring.
		Waiting in line is a waste of a valuable resource: time. Paying a price in money transfers the value of resources from one person to another, and maximizes the value of resources.
		Paying with time gives those who do not work an advantage over those who do.

2 points

Question 7

Which of the following is a possible effect of a price floor?

		The quantity supplied exceeds the quantity demanded.
		Increased gains from trade.
		Decreases in product quality.
		A shortage of the good.

ECN 104 Lecture Notes - Lecture 6: Price Ceiling, Price Floor, Price Controls

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