1. Which of the following statements about price controls is correct?
a. Price controls are used to make markets more efficient.
b. Price controls are usually enacted when policymakers believe that the market price of a
good or service is unfair to buyers or sellers.
c. Price controls are nearly always effective in eliminating inequities.
d. Price controls are established by firms with monopoly power.
2. Which of the following statements about price controls is correct?
a. Price controls produce an equitable outcome.
b. Price controls produce an efficient outcome.
c. Price controls are imposed by business firms to promote an equitable outcome.
d. Price controls lead to shortages or surpluses.
3. What is a government-imposed maximum price at which a good can be sold?
a. a price floor
b. a price ceiling
c. a price support
d. a price equilibrium
4. What does a binding price ceiling cause?
a. a shortage that cannot be eliminated through market adjustment
b. a surplus that cannot be eliminated through market adjustment
c. a shortage that is temporary, since market adjustment will cause price to rise
d. a surplus that is temporary, since market adjustment will cause price to rise
5. Refer to Figure 6-1. Where is a binding price ceiling shown?
a. panel (a)
b. panel (b)
c. both panel (a) and panel (b)
d. neither panel (a) nor panel (b)
Figure 6-2 6. Refer to Figure 6-2. If the government imposes a binding price floor of $14.00 in this market, what is the
a. a surplus of 20 units
b. a shortage of 30 units
c. a surplus of 40 units
d. a shortage of 40 units
7. Refer to Figure 6-2. At what price would there be a binding price floor?
a. a price of $10.00
b. a price of $8.00
c. any price above $10.00
d. any price below $10.00
8. When binding price ceilings are imposed to benefit buyers, what happens?
a. Every buyer in the market benefits because of lower prices.
b. Some buyers will not be able to buy any of the product.
c. Sellers in the market will also benefit from price ceilings.
d. The quantity sellers want to sell will equal the quantity buyers want to buy.
9. What will a binding price ceiling make it necessary to do?
a. supply more of the product
b. develop a way of rationing the product, because there will be a shortage
c. develop a better marketing plan, because there will be a surplus
d. increase demand for the product
10. Refer to Figure 6-3. With a price ceiling present in this market, what will happen when the supply curve for
gasoline shifts from S 1o S ?2
a. The price will increase to P 3.
b. A surplus will occur at the new market price of P . 2
c. The market price will stay at P due to the price ceiling.
d. A shortage will occur at the price ceiling of P . 2
11. Refer to Figure 6-3. Without the price ceiling in this market for gasoline, what will happen to the price when
the supply curve shifts from S t1 S ? 2
a. It will increase to P , but a shortage will still exist.
b. It will increase to P a3d the market will clear.
c. It will remain at P a1d a shortage will still exist.
d. It will eventually move to P wit2out government assistance.
12. What do we know about price ceilings and price floors?
a. They are desirable because they make markets more efficient as well as equitable.
b. They cause surpluses and shortages to persist since price cannot adjust to the market
c. They can be enacted to restore a market to equilibrium.
d. They are imposed because they can make the poor in the economy better off without
causing adverse effects. 13. Over time, what happens to housing shortages caused by rent control?
a. They increase, because the demand and supply curves for housing are more elastic in the
b. They increase, because the demand and supply curves for housing are more inelastic in the
c. They decrease, because the demand and supply curves for housing are more inelastic in
the long run.
d. They change very little since price is not allowed to adjust.
14. Under rent control, landlords cease to be responsive to tenants' concerns about the quality of the housing.
Why is this?
a. With shortages and waiting lists, landlords have no incentive to maintain and improve
b. Landlords know they can never please their tenants.
c. The law no longer requires landlords to maintaintheir buildings.
d. Quality of housing becomes the government's responsibility.
15. With a binding price floor, what will the market price be?
a. lower than the price floor
b. higher than the price floor
c. equal to the price floor
d. It is impossible to compare the market price with the price floor.
16. What is the minimum wage an example of?
a. a price ceiling
b. a price floor
c. a free-market process
d. an efficient labour allocation mechanism
17. What results when the minimum wage is above the equilibrium wage?
a. The quantity demanded of labour will be greater than the quantity supplied.
b. The quantity demanded of labour will equal the quantity supplied.
c. The quantity demanded of labour will be less than the quantity supplied.
d. Anyone who wants a job at the minimum wage can find one.
18. Why are workers with high skills and much experience not affected by the minimum wage?
a. They belong to unions.
b. They are not legally guaranteed the minimum wage.
c. They generally earn wages less than the minimumwage.
d. Their equilibrium wages are well above the minimum wage.
19. Which of the following is NOT a function of prices in a market system?
a. Prices have the crucial role of balancing supplyand demand.