ECON 1B03 Study Guide - Midterm Guide: Average Variable Cost, Factor X, Sunk Costs

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ECON 1B03 Full Course Notes

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A price ceiling: is a legal maximum on the price at which a good can be sold. The price ceiling is not binding (not effective) if it is set above equilibrium price. The price ceiling is binding (effective) if set below equilibrium price, leading to a shortage. A price floor: a legal minimum on a price at which a good can be sold. The price floor is not binding if set below the equilibrium price. The price floor is binding if set above the equilibrium price, leading to a surplus. An upper limit on the quantity of a good that can be sold. Government usually issues quota licenses that give producers a right to produce a specified amount of a good. The number of taxis in a city is strictly controlled. The amount of fish you are allowed to catch and sell. Often seen with dairy products and agricultural products. Governments levy taxes to raise revenue for public projects.

Related Questions

Consider the market for labor depicted by the demand and supply curves that follow.

Complete the following table with the quantity of labour supplied and demanded if the wage is set at $15.00. Then indicate whether this wage will result in a shortage or a surplus.

Wage Labor Demanded Labor Supplied Shortage or surplus

(Dollars per hour) (Thousands of workers) (Thousands of workers)

Suppose a senator considers introducing a bill to legislate a minimum hourly wage of $15.

Which of the following statements are true? Check all that apply.

1. In the absence of price controls, a surplus puts downward pressure on wages until they fall to the equilibrium.

2. In this labour market, a minimum wage of $11.50 would be binding.

3. If the minimum wage is set at $15, the market will not reach equilibrium.

4. Binding minimum wages cause structural unemployment.

apricotelephant493

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.

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.

ECON 1B03 Study Guide - Midterm Guide: Average Variable Cost, Factor X, Sunk Costs

ECON 1B03 Full Course Notes

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