ECO105Y1 Chapter Notes - Chapter 5: Unintended Consequences, Price Ceiling, Price Floor

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champagnegerbil876

23 Nov 2012

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Chapter 5: what gives when prices don"t? (government choices, When price is fixed below market-clearing, shortages develop (quantity demanded greater than quantity supplied) and consumers are frustrated. When price is fixed above market-clearing, surpluses develop (quantity supplied greater than quantity demanded) and businesses are frustrated. Fixed prices = no coordinated prices- the only way shortages or surpluses disappear is by quantities adjusting to whichever is less. With fixed prices, either the consumer or business is frustrated. Rent controls: example of price ceiling, maximum price set by government, making it illegal to charge higher price. Robin hood principal : to take from the rich, and give to the poor. Housing shortages, an unintended consequence of rent controls, give landlords the upper hand in dealings with tenants. A contributing factor to the shortage of housing may be that landlord"s benefits no longer exceed opportunity costs.

Related Questions

Who bears the primary costs of a rent control program?

landlords

renters that get rent-controlled apartments

taxpayers

the wealthy

Assume the demand for sushi is Qd = 180 - 3P, where Qd is quantity demanded and P = price in dollars. The supply of sushi is Qs = 80 + 5P, where Qs is quantity supplied (and P is, again, price in dollars). A price of $20 would result in:

	A.	Excess supply of 60
	B.	Excess supply of 120
	C.	Excess supply of 140
	D.	Excess demand of 140

US agricultural price supports are politically popular because

They have no adverse impacts

The US would have food shortages without them

The benefits accrue to a large number of voters and the costs are paid by a small number of voters

The costs are spread out among millions of people

	A.	$15.50
	B.	$12.50
	C.	$10
	D.	$15

Price floors and ceiling prices:

cause the supply and demand curves to shift until equilibrium is established.

both cause surpluses.

interfere with the rationing function of prices.

A change in the price of a good leads to a change in ________, which leads to a ___________

quantity supplied; shift of the supply curve

supply; shift of the supply curve

quantity supplied; movement along the supply curve

When the supply of a product increases, this implies that

the price of the product first declined

more will be purchased at the same price

producers will be willing to accept a lower price for each unit sold

demand for the good must have increased

producers will offer less for sale at each possible price

If there is a excess demand for product X:

fewer resources will be allocated to the production of this good.

the price of the product will rise.

the supply curve will shift to the left and the demand curve to the right, eliminating the shortage.

the price of the product will decline.

Which of the following will occur when there is a simultaneous decrease in demand and a decrease in supply?

B and D both necessarily occur

An increase in equilibrium quantity

A and C both necessarily occur

An increase in price

A and D both necessarily occur

A decrease in price

A decrease in equilibrium quantity

Velcro is becoming more and more popular for a variety of uses, including as fasteners for shoes. What should happen to the equilibrium price and quantity for shoelaces as a result?

Both price and quantity should decrease.

Price should increase and quantity decrease.

Both price and quantity should increase.

Price should decrease and quantity increase.

Nothing.

If the government imposes a ceiling price on apartment rents, we would expect to observe all of the following except one. Which is the exception?

	A.	conversion of some apartment complexes to condos
	B.	a shortage
	C.	an increase in the number of new apartment complexes being built
	D.	lower maintenance of existing apartments
	E.	long waiting lists for apartment seekers

supply; movement along the supply curve

both cause shortages.

chocolatebadger640

1.Under rent controls, Select one:

a. the quantity supplied of rental units is greater than it would be under freely competitive markets.

b. there is a shortage of rental units.

c. there is less government involvement in rental markets overall because there is a better supply of low-income housing.

d. all renters are better off than under freely competitive markets.

2.Which of the following is NOT a function of rental prices?

Select one:

a. To stimulate the construction of new housing

b. To allocate existing scarce housing among different people

c. To provide housing to individuals below market value

d. To ration the existing housing stock

3. price floors are designed to

a. establish a minimum allowable price

b. create shortages when none existed before

c. none of these

d. allow free market prices to be achieved

4.what are the effects of an increase in the minimum wage? who would be most affected?

5. the minimum wage laws seek to

a. help teenagers find work

b. assure that all workers are paid the same wage rate

c. assure a minimum standard of payment for work

d. penalize employers that are not complying with labor laws

6. A black market s a market in which

a. goods are sold at outlet prices

b. sales taxes are effectively doubled

c. sales take place exclusively at outlet prices.

d. goods are traded at price above their legal maximum prices

viridianalpaca10

Question 1 If it was impossible to have a comparative advantage, there would be no gains from trade. True False 4 points

Question 2 If the price of Good X is $10 and price of Good Y is $15, the slope of the budget constraint is 1.5. True False 4 points

Question 3 If the demand and supply curves have equal slopes in absolute value, the burden of a commodity tax will be split equally regardless of on whom the tax is placed. True False 4 points

Question 4 Suppose that supply is fixed at 100 units and demand is Q = 500 P. A price ceiling of $100 creates a shortage of 400 units. True False 4 points

Question 5 Housing shortages caused by rent controls are larger in the long run because the supply of housing is more elastic in the long run. True False 4 points

Question 6 Firms should exit the industry if average costs are greater than marginal costs. True False 4 points

Question 7 If a 3.67 percent increase in price causes a 1.97 percent decrease in quantity demanded, then total revenue must fall following an increase in price. True False 4 points

Question 8 Which of the following choices best illustrates the concept of Adam Smith's invisible hand ? A Vietnamese farmer grows rice; an exporter ships it to the United States, and a grocer in New York sells it to a customer. A fishery's stock of fish becomes depleted due to overfishing as boats from around the world converge. A government regulates a firm to clean up the pollutants it has released as part of its production process. An apartment building is built, which provides much needed housing, on the site of the only playground for children in that town. 4 points

Question 9 Figure: Labor Supply and Welfare Refer to the figure. The budget constraint is: ABC. BD. ABDC. ABD. 4 points Question 10 The price of coffee has increased, yet evidence suggests the demand for coffee has been stable. A possible explanation is that: there has been no change in the supply of coffee. there has been increased use of subsidies in coffee production. wages of workers in coffee production might have decreased. wages of workers in coffee production might have increased. 4 points Question 11 Which of the following statements is TRUE regarding profit maximization in competitive markets? I. When all firms pursue profits, none of them achieve profits. II. When all firms pursue profits, only the most innovative will achieve profits. III. Production is divided in such a way that total costs of production are minimized. I only II only I and III only II and III only 4 points Question 12 Suppose France can produce four phones or three computers with one unit of labor, and Sweden can produce one phone or two computers with one unit of labor. If France can trade only with Sweden, then the theory of comparative advantage suggests that: France should specialize in producing phones and import computers from Sweden. France should specialize in producing computers and import phones from Sweden. France should produce both phones and computers, and import nothing from Sweden. France should import both phones and computers from Sweden. 4 points Question 13 Potato chips and popcorn are substitutes. A subsidy for potato chips will ______the demand for popcorn and the quantity of popcorn sold will ______. (Table: Barrels of Oil) Refer to the table. What is the total amount of producer surplus (per barrel of oil) earned by all four producers if the market price per barrel of oil is $51? Table: Barrels of Oil Minimum willingness to sell Country a single barrel of oil Country A $32.00 Country B 16.00 Country C 17.25 Country D 56.99 increase; increase increase; decrease decrease; decrease decrease; increase 4 points Question 14 In the market for Good X a necessity good without any good substitutes the workers and capital in the industry can easily find work producing other goods. The burden of the tax is likely to fall: more heavily on buyers, given that demand is more inelastic than supply. evenly between buyers and sellers. more heavily on sellers, given that supply is more inelastic than demand. more heavily on buyers, given that demand is more elastic than supply. 4 points Question 15 A U.S. manufacturer arranges to purchase parts from a German supplier for 500,000 euros in six months. The U.S. manufacturer is concerned that the dollar will depreciate against the euro, meaning the dollar cost of the 500,000 euros will rise. What should the U.S. manufacturer do? lobby the Fed to lower interest rates on six-month T-bills buy a futures contract that fixes the dollar cost of 500,000 euros in six months buy an exchange rate contract that pegs the interest rate to the discount rate on interbank loans sell a naked option to cover the output spread 4 points Question 16 Which of the following scenarios would cause a speculator to buy low and sell high ? Farmers expect to have a bumper harvest of corn next year. Imports of corn begin to flood the country. The government is expected to pass legislation making it mandatory for all vehicles to use corn-based fuels within one year. The government is expected to subsidize corn production for farmers. 4 points Question 17 In a market with a price ceiling which of the following is TRUE? Buyers and sellers experience unexploited gains from trade. Resources are allocated to their most efficient uses. The supply of goods is sold by the sellers with the lowest costs. The supply of goods is bought by the buyers with the highest willingness to pay. 4 points Question 18 Consider the following statements: I. Relative to a no-trade situation, if the United States exported wheat, the U.S. domestic wheat price would rise and domestic production of wheat would expand. II. Relative to a no-trade situation, international trade causes prices of all goods to rise. I is true; II is false. I is false; II is true. Both I and II are true. Both I and II are false. 4 points Question 19 As the price of a good fluctuates, a profit-maximizing firm will expand or contract production along its: average cost curve. average product curve. marginal cost curve. marginal product curve. 4 points Question 20 An increase in demand and a decrease in supply occur in a market. What happens to the equilibrium price and quantity? The equilibrium price decreases; the change in the equilibrium quantity is ambiguous. The equilibrium price decreases; the equilibrium quantity increases. The equilibrium price increases; the change in the equilibrium quantity is ambiguous. The equilibrium price increases; the equilibrium quantity decreases.

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ECO105Y1 Chapter Notes - Chapter 5: Unintended Consequences, Price Ceiling, Price Floor

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