ECN 203 Lecture Notes - Lecture 7: Equilibrium Point, Price Ceiling, Economic Equilibrium

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26 Feb 2017

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Government policies that alter the private market outcome: price controls, price ceiling (price cap): places an upper limit on the price at which a particular good or service may be traded. Trading above the price ceiling is illegal: price floor: places a lower limit on the price at which a particular good or service may be traded. Ex: minimum wage - no company can pay employees below wage: taxes. If the price ceiling is above the equilibrium price: If the price ceiling is below the equilibrium price: The ceiling is a binding constraint on the price, creating a shortage. Now that there is a shortage, some people will be willing to pay above the price ceiling. With a shortage, sellers must ration the goods among buyers. Goods do not go to the buyers who value them most highly. There are more renters than landlords, so rent ceilings can tip an election.

Related Questions

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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ECN 203 Lecture Notes - Lecture 7: Equilibrium Point, Price Ceiling, Economic Equilibrium

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