ECON 001 Lecture Notes - Lecture 6: Price Floor, Economic Equilibrium, Demand Curve

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.

The price elasticity of demand for natural gas is -1.2, and the price elasticity of supply for natural gas is 0.6. If the government imposes a ceiling price for natural gas that is 10 percent below the equilibrium price, the result will be a shortage equal to ___ percent of the equilibrium quantity?

Suppose that in the market for aluminum rods the demand and supply functions are given by:
Demand Function: QD = 300 – 2.5PSupply Function: QS = 5P - 15
Where P = price per aluminum rod and Q = number of aluminum rods
(a) Find the initial equilibrium price and quantity. Calculate the initial consumer surplus (CS) andproducer surplus (PS).
(b) Suppose the government imposes a price floor on aluminum rods. Aluminum rods must now sell for$50 per unit. Will there be a surplus or a shortage of aluminum rods at the price floor? Calculate theamount of the surplus or shortage.
(c) Calculate the consumer surplus (CS) and producer surplus (PS) after the imposition of the price floor.Calculate the deadweight loss associated with the imposition of the price floor.
(d) Are households better off or worse off after the imposition of the price floor? Are firms better off orworse off after the imposition of the price floor? Use your answers from Parts (a) and (c) to explain youranswer.