Honors Economics - Practice Midterm

Front

An effective price floor must be set above equilibrium, resulting in:

Back

a surplus

Answer explanation

An effective price floor set above equilibrium leads to a surplus because it raises the price, causing quantity supplied to exceed quantity demanded.

Front

If the government set the price at $700, would that be a price ceiling or floor?

Back

Price Floor

Answer explanation

A price floor is a minimum price set by the government, preventing prices from falling below a certain level. Since $700 is a minimum price, it is a price floor.

Front

If an effective rent ceiling is eliminated, which of the following is most likely to occur in the rental housing market? An increase in the demand for housing, resulting in a decrease in the quantity of housing supplied; An increase in the demand for housing, resulting in an increase in the quantity of housing demanded; An increase in rents, resulting in an increase in the quantity of housing supplied; A decrease in rents, resulting in an increase in the quantity of housing supplied

Back

An increase in rents, resulting in an increase in the quantity of housing supplied

Answer explanation

Eliminating a rent ceiling allows landlords to raise rents. Higher rents attract more suppliers to the market, increasing the quantity of housing supplied, making this the most likely outcome.

Front

When a price ceiling is imposed in a market:

Back

A shortage results

Answer explanation

When a price ceiling is set below the equilibrium price, it leads to a shortage because the quantity demanded exceeds the quantity supplied, resulting in not enough product available for consumers.

Front

At the price, neither a surplus or a shortage exists

Back

equilibrium

Answer explanation

At equilibrium, the quantity demanded equals the quantity supplied, resulting in no surplus or shortage. This is the price point where the market is balanced.

Front

A _______________ is a maximum price sellers are allowed to charge for a good. It's an upper limit for the price.

Back

price ceiling

Answer explanation

A price ceiling is a maximum price that sellers can charge for a good, effectively setting an upper limit on the price. This prevents prices from rising above a certain level, which is why 'price ceiling' is the correct answer.

Front

This is the minimum price buyers are required to pay for a good. It's a lower limit for the price.

Back

price floor

Answer explanation

A price floor is the minimum price that buyers must pay for a good, acting as a lower limit. It prevents prices from falling below a certain level, unlike a price ceiling, which sets a maximum price.

Front

A price ceiling will result in a

Back

shortage

Answer explanation

A price ceiling is a maximum price set below equilibrium, leading to increased demand and decreased supply. This imbalance creates a shortage, as more consumers want the product than what is available.

Front

A price floor will result in a

Back

surplus

Answer explanation

A price floor sets a minimum price above equilibrium, leading to a surplus as quantity supplied exceeds quantity demanded at that price. Thus, the correct answer is surplus.

Front

What does this curve represent?

Back

supply

Answer explanation

The curve represents supply, indicating the relationship between the price of a good and the quantity that producers are willing to sell. It shows how supply increases as prices rise.