Chap 6

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

• above the equilibrium price

• precisely at the equilibrium price

• at any price because all price ceilings are binding constraints

• below the equilibrium price

A binding price ceiling creates a(n) ________.

• surplus

• shortage

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

• equilibrium

Suppose the equilibrium price for apartments is $1,500 per month and the government imposes rent controls of $900 per month. Which of the following is unlikely to occur as a result of the rent controls?

• Landlords may be offered bribes to rent apartments.

• There will be a shortage of housing.

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

• Landlords may discriminate among apartment renters.

• The quality of apartments will improve.

A price floor ________.

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

• 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

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

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

• 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.

• The surplus created by the price ceiling is greater in the short run than in the long 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 $4.00 per gallon

• The minimum wage

• All of the answer choices 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.

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

• 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.

Studies show that a 10 percent increase in the minimum wage ________.

• increases teenage employment by about 1 to 3 percent

• decreases teenage employment by about 10 to 15 percent

• decreases teenage employment by about 1 to 3 percent

• increases teenage employment by about 10 to 15 percent