ECO 1104 Study Guide - Midterm Guide: Price Ceiling, Economic Surplus, Price Floor

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ECO 1104 Full Course Notes

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Price ceiling is a regulated price designed to protect the interests of consumers. The government dictates a maximum price for a commodity. Example: rent control laws: go(cid:448)e(cid:396)(cid:374)(cid:373)e(cid:374)t de(cid:272)ides that (cid:396)e(cid:374)ts a(cid:396)e(cid:374)(cid:859)t (cid:862)fai(cid:396)(cid:863) It intervenes in the housing market to provide affordable housing. Price floor the (cid:373)a(cid:396)ket ge(cid:374)e(cid:396)ates a p(cid:396)i(cid:272)e (cid:449)hi(cid:272)h offe(cid:374)ds ou(cid:396) se(cid:374)se of (cid:862)so(cid:272)ial justi(cid:272)e(cid:863) The p(cid:396)i(cid:272)e is so lo(cid:449) that p(cid:396)odu(cid:272)e(cid:396)s (cid:272)a(cid:374)(cid:859)t (cid:373)ake a de(cid:272)e(cid:374)t li(cid:448)i(cid:374)g. It is the consumers on the demand side who are exploiting the producers on the supply side. Government comes to the rescue by imposing a price floor. Creates a situation of excess quantity supplied: price increases, quantity supplied increases, price increases, quantity demanded decreases, big surpluses emerge, placing downward pressure on prices, situation is unsustainable unless the surplus is removed from the market. A price floor is ineffective unless it is above the equilibrium price.

Related Questions

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.

PLEASE EXPLAIN ANSWER: I give best asnwer at the end of the time limit!!!

The more certain private property rights are,

a. A. the less people need to invest in education or human capital development.

b. tB. The less entrepreneurship there will be.

c. C/ the more capital accumulation there will be.

D/ d. the more an economy must grow to maintain a certain living standard.

In general, who will benefit as the result of a tariff?

Domestic Producers
Domestic Consumers
The domestic government

a. I only

b. II only

c. both I and III

d. both II and III

e. All of these are correct

In the long run, imports will most likely be paid for with:

a. a. Aexports.

b. tB. The sale of real and financial assets.

c. C/ the extension of credit.

d. D. higher domestic unemployment.

The World Trade Organization is a successor organization to the

a. A.United Nations.

b. B.World Bank.

c. C.International Court of Justice.

d. D.GATT.

A new industry develops, and our government wants to protect it from foreign competition. Which one of the following arguments would appropriately describe this type of protection?

A. ANational security

B. BCartelization

C. CInfant industry

D. DProtecting American jobs

If equilibrium price falls and the equilibrium quantity of the good purchased decreases, what has happened to either the supply curve or to the demand curve?

a. ADemand decreased.

b. Supply increased.

c. CSupply decreased.

d. DDemand increased.

Suppose there is a simultaneous increase in the demand for diamonds and increase in the supply of diamonds. Which of the following will occur as a result of these simultaneous events?

a. B/Both the market clearing price and equilibrium quantity will rise.

b. A.The market clearing price will fall, but the equilibrium quantity may rise, fall, or stay the same.

c. C.The market clearing price may rise, fall, or stay the same, but the equilibrium quantity will increase.

d. F.The market clearing price will fall, but the equilibrium quantity will rise.

Price Q_d Q_s

$2 5,000 1,000
$4 4,000 2,000
$6 3,000 3,000
$8 2,000 4,000
$10 1,000 5,000

Consider the above table. Assuming the government imposes a price floor on garbanzo beans of $8, what would be the likely result?

a. A/ no change, equilibrium would prevail

b. B.The quantity demanded of garbanzo beans would fall to zero.

c. C. shortage of 2000 garbanzo beans

d. D/ surplus of 2000 garbanzo beans

ECO 1104 Study Guide - Midterm Guide: Price Ceiling, Economic Surplus, Price Floor

ECO 1104 Full Course Notes

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