Econ chapter 6

Why do government leaders impose price controls?

• They are trying to promote the formation of illegal markets.

• They are trying to ensure that the market reaches equilibrium.

• They are trying to ensure that all consumers are able to purchase a specific product.

• They are trying to ensure that a social goal is satisfied.

• They are trying to shift the demand curve.

Many states have laws that limit the maximum amount of interest that a lender can charge a borrower. Such a law is an example of a(n)

• equilibrium price.

• illegal market price.

• price floor.

• ration price.

• price ceiling.

The town of Fairness has a law that says that wages should be high enough to ensure that all people can afford to buy enough food to feed their families. The law that sets food prices low enough to meet these requirements would be an example of a(n)

• minimum wage law.

• illegal market price.

• fair wage law.

• ration price.

• price ceiling.

Under which circumstances will an illegal market for a good or service emerge?

• Both binding and nonbinding price controls are in place.

• Binding price ceilings are in place

• Binding price floors are in place.

• Either binding price ceilings or binding price floors are in place

• No price controls are present

A likely consequence of a price floor on bread is

• consumers will want to buy less bread and producers will want to produce more bread.

• higher quality bread produced.

• lots of bread going unsold.

• waiting lines.

• the elimination of an illegal market for bread.

A binding price ceiling will have which of the following consequences?

• There will be downward pressure on prices until quantity demanded equals quantity supplied.

• There will be upward pressure on prices until quantity demanded equals quantity supplied.

• There are no consequences to a binding price ceiling.

• The quantity demanded will always exceed the quantity supplied.

• The quantity supplied will always exceed the quantity demanded.

Why does a surplus exist under a binding price floor?

• A price floor encourages sellers to produce less of the product.

• A price floor encourages buyers to purchase more of the product.

• A price floor makes the price so high that the quantity supplied exceeds the quantity demanded in the legal market.

• A price floor makes the price so low that the quantity demanded exceeds the quantity supplied in the legal market.

• A price floor discourages sellers from increasing the quality of the products they sell, which in turn increases the quantity demanded.

Do all buyers benefit from a binding price ceiling?

• Yes. A binding price ceiling benefits all buyers because it allows them to obtain as much of the good desired in the legal market at a lower price.

• No. A binding price ceiling benefits only some buyers because not all are able to obtain the good in the legal market at the government-set price.

• No. A binding price ceiling benefits no buyers because sellers are unwilling to sell any of their products.

• No. A binding price ceiling benefits only some buyers because, although the price is initially lower, the price in the legal market eventually increases to its equilibrium price.

• No. A binding price ceiling benefits no buyers because they are unwilling to buy any of the products at a price higher than the equilibrium price.

Market for TVs:
Demand: Qd= 2,600 – 5P
Supply: Qs=–1,000 + 10P

What would be the quantity demanded if a price ceiling is set at $200?

• 500

• 1,600

• 1,850

• 260

• 240

Market for TVs:
Demand: Qd= 2,600 – 5P
Supply: Qs=–1,000 + 10P

What would be the quantity supplied if a price ceiling is set at $200?

• 600

• 3,000

• 240

• 2,400

• 1,000