5. MICRO-CH-6

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.

A binding price ceiling creates

• a shortage.

• a surplus.

• an equilibrium.

• a shortage or a surplus depending on whether the price ceiling is set above or below the equilibrium price.

Suppose the equilibrium price for apartments is $800 per month and the government imposes rent controls of $500. Which of the following is unlikely to occur as a result of the rent controls?

• There will be a shortage of housing.

• Landlords may discriminate among apartment renters.

• Landlords may be offered bribes to rent apartments.

• The quality of apartments will improve.

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

A price floor

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

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

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

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

Which of the following statements about a binding price ceiling is true?

• The surplus created by the price ceiling is greater in the short run than in the long run.

• The surplus created by the price ceiling is greater in the long run than in the short run.

• The shortage created by the price ceiling is greater in the short run than in the long run.

• The shortage created by the price ceiling is greater in the long run than in the short run.

Which side of the market is more likely to lobby government for a price floor?

• Neither buyers nor sellers desire a price floor.

• Both buyers and sellers desire a price floor.

• the sellers

• the buyers

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

• both supply and demand are elastic.

• both supply and demand are inelastic.

• supply is inelastic and demand is elastic.

• demand is inelastic and supply is elastic.

Which of the following is an example of a price floor?

• rent controls

• restricting gasoline prices to $2.00 per gallon when the equilibrium price is $3.00 per gallon

• the minimum wage

• All of these are price floors.

Which of the following statements is true if the government places a price ceiling on gasoline at $4.00 per gallon and the equilibrium price is $3.00 per gallon?

• There will be a shortage of gasoline.

• There will be a surplus of gasoline.

• A significant increase in the supply of gasoline could cause the price ceiling to become a binding constraint.

• A significant increase in the demand for gasoline could cause the price ceiling to become a binding constraint.

Within the supply-and-demand model, a tax collected from the buyers of a good shifts the

• demand curve upward by the size of the tax per unit.

• demand curve downward by the size of the tax per unit.

• supply curve upward by the size of the tax per unit.

• supply curve downward by the size of the tax per unit.