Supply, Demand, and Government Policies - Controls on Prices

In a competitive market free of government regulation,

• price adjusts until quantity demanded is greater than quantity supplied.

• price adjusts until quantity demanded is less than quantity supplied.

• price adjusts until quantity demanded equals quantity supplied.

• supply adjusts to meet demand at every price.

A legal maximum on the price at which a good can be sold is called a price

• floor

• subsidy

• support

• ceiling

A price ceiling is

• often imposed on markets in which “cutthroat competition” would prevail without a price ceiling.

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

• often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price ceiling.

• All of the above are correct.

Which of the following is the most likely explanation for the imposition of a price ceiling on the market for milk?

• Policymakers have studied the effects of the price ceiling carefully, and they recognize that the price ceiling is advantageous for society as a whole.

• Buyers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling.

• Sellers of milk, recognizing that the price ceiling is good for them, have pressured policymakers into imposing the price ceiling.

• Buyers and sellers of milk have agreed that the price ceiling is good for both of them and have therefore pressured policymakers into imposing the price ceiling.

If a price ceiling is not binding, then

• the equilibrium price is above the price ceiling.

• the equilibrium price is below the price ceiling.

• it has no legal enforcement mechanism.

• More than one of the above is correct.

A shortage results when

• a nonbinding price ceiling is imposed on a market.

• a nonbinding price ceiling is removed from a market.

• a binding price ceiling is imposed on a market.

• a binding price ceiling is removed from a market.

The imposition of a binding price ceiling on a market causes quantity demanded to be

• greater than quantity supplied.

• less than quantity supplied

• equal to quantity supplied.

• Both (a) and (b) are possible.

If a price ceiling is a binding constraint on a market, then

• the equilibrium price must be below the price ceiling.

• the quantity supplied must exceed the quantity demanded.

• sellers cannot sell all they want to sell at the price ceiling.

• buyers cannot buy all they want to buy at the price ceiling.

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market?

• A smaller quantity of the good is bought and sold after the price ceiling becomes effective.

• A smaller quantity of the good is demanded after the price ceiling becomes effective.

• A larger quantity of the good is supplied after the price ceiling becomes effective.

• All of the above are correct.

If a binding price ceiling is imposed on the computer market, then

• the demand for computers will increase

• the supply of computers will decrease.

• a shortage of computers will develop.

• All of the above are correct.