Government Policies

If the equilibrium price of petrol is $1.00 per liter and the government places a price ceiling on petrol of $1.50 per liter, the result will be a shortage of petrol.

• True

• False

A price ceiling set below the equilibrium price causes a surplus.

• True

• False

A price floor set above the equilibrium price is a binding constraint.

• True

• False

The minimum wage helps all teenagers because they receive higher wages than they would otherwise.

• True

• False

For a price ceiling to be a binding constraint on the market, the government must set it

• above the equilibrium price.

• below the equilibrium price.

• precisely at the equilibrium price.

• at any price because all price ceilings are binding constraints.

Suppose the equilibrium price for apartments is $500 per month and the government imposes rent controls of $250. Which of the following is unlikely to occur as a result of the rent controls?

• There may be long lines of buyers waiting for apartments.

• Landlords may discriminate among apartment renters.

• There will be a shortage of housing.

• Landlords may be offered bribes to rent apartments.

• The quality of apartments will improve.

A price floor

• always determines the price at which a good must be sold.

• sets a legal maximum on the price at which a good can be sold.

• is not a binding constraint if it is set above the equilibrium price.

• sets a legal minimum on the price at which a good can be sold.

The surplus caused by a binding price floor will be greatest if

• demand is inelastic and supply is elastic

• supply is inelastic and demand is elastic.

• both supply and demand are elastic

• both supply and demand are inelastic