Chapter 4 & 5 Test Review

In order for a price floor to have an impact on a market it must be set below the equilibrium price.

• True

• False

If the minimum wage law sets a price floor that is below the equilibrium wage in the unskilled labor market, the minimum wage will create a shortage of unkilled labor?

• True

• False

A price ceiling is a government-mandated

• maximum price above which legal trades cannot be made

• minimum price below which legal trades cannot be made

• minimum price above which legal trades cannot be made

• maximum price below which legal trades cannot be made

Refer to Exhibit 4-1. The number of units bought and sold at the price ceiling is

• 75

• 125

• 175

• 100

Refer to Exhibit 4-1. How many fewer units are bought and sold because of the price ceiling than would have been bought and sold at the equilibrium price?

• 50

• 60

• 65

• 100

Refer to Exhibit 4-1. Suppose the good shown is being sold at the $6 price ceiling. At a quantity of 75 units, what is the maximum per-unit price buyers would be willing to pay for a good "tied" to the good shown in the exhibit?

• $10

• $8

• $6

• $4

• none of the answers are correct

Refer to Exhibit 4-1. At the equilibrium price, ________ units of the good would be exchanged.  With a price ceiling, _______ units of the good would be exchanged.

• 125 ; 75

• 75 ; 125

• 175 ; 125

• 125 ; 175

A price floor is a government-mandated

• minimum price below which legal trades cannot be made

• maximum price above which legal trades cannot be made

• minimum price at which all units of the good must be legally sold

• minimum price below which legal trades can be made

A price floor (set above the equilibrium price) on rice will

• result in a surplus of rice

• force otherwise profitable farmers out of business

• result in a shortage of rice

• clear the market for rice

• force otherwise profitable farmers out of business & result in a shortage of rice

Price ceilings and price floors

• interfere with the rationing function of prices

• shift demand and supply curves and therefore have no effect upon the rationing function of prices

• make the rationing function of free markets more efficient

• cause surpluses and shortages, respectively