90
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8) The figure above illustrates the current market for apartments in Washington, D.C.
a. If the local government imposes a price ceiling of $1,500 per month, is there a shortage? If
so, how much, if not, why not?
b. If the local government imposes a price ceiling of $900 per month, is there a shortage? If so,
how much, if not, why not?
Skill: Level 3: Using models
Section: Checkpoint 7.1
Author: JC
AACSB: Analytical reasoning
91
Copyright © 2011 Pearson Education, Inc.
9) The above figure shows the market for a prescription drug. What is the equilibrium price of
the drug? How many doses are purchased? Suppose the government imposes a price ceiling of
$1.50 a dose. How many doses are purchased after the price ceiling is imposed?
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Author: SB
AACSB: Analytical reasoning
7.7 Essay: Price Floors
1) Explain why a price floor set below the equilibrium price is ineffective.
Skill: Level 3: Using models
Section: Checkpoint 7.2
Author: SB
AACSB: Communication
92
Copyright © 2011 Pearson Education, Inc.
2) Compare and contrast a price ceiling and a price floor.
Skill: Level 2: Using definitions
Section: Checkpoint 7.2
Author: CD
AACSB: Communication
3) Will an increase in the minimum wage create more unemployment if the supply and demand
for labor are highly elastic or highly inelastic?
Skill: Level 5: Critical thinking
Section: Checkpoint 7.2
Author: SB
AACSB: Communication
4) Why would an increase in the minimum wage to $15 per hour lead to more unemployment for
teenage and low-skilled workers?
Skill: Level 2: Using definitions
Section: Checkpoint 7.2
Author: JC
AACSB: Communication
93
Copyright © 2011 Pearson Education, Inc.
5) Explain why low-skilled workers find that their employment opportunities are less with a
minimum wage.
Skill: Level 3: Using models
Section: Checkpoint 7.2
Author: TS
AACSB: Communication
6) How does the elasticity of demand for labor affect the deadweight loss from an increase in the
minimum wage? Why?
Skill: Level 3: Using models
Section: Checkpoint 7.2
Author: TS
AACSB: Communication
7) Discuss the inefficiencies created by a price floor.
Skill: Level 3: Using models
Section: Checkpoint 7.2
Author: SA
AACSB: Communication
94
Copyright © 2011 Pearson Education, Inc.
8) Who are minimum wages designed to help? Do they succeed? What is their effect on society?
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Author: SB
AACSB: Communication
9) We know that the minimum wage causes unemployment. So, why does the government
impose one?
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Author: SA
AACSB: Communication
95
Copyright © 2011 Pearson Education, Inc.
10) The table above gives the supply and demand schedules for scooters. Because of increased
injuries sustained by children riding scooters, Citizens Against Scooter Accidents successfully
lobbies the government to impose a price floor of $80.00 on scooters.
a. What is the quantity demanded and supplied after the price floor has been imposed?
b. Is there any shortage or surplus at this price floor? If so, how much?
c. If the price floor is raised to $110.00, what is the quantity demanded and supplied?
d. At a price floor of $110.00, is there any shortage or surplus? If so, how much?
Skill: Level 3: Using models
Section: Checkpoint 7.2
Author: SA
AACSB: Analytical reasoning
96
Copyright © 2011 Pearson Education, Inc.
11) The figure above illustrates the current market for fast-food workers in Baltimore.
a. Without any government intervention, what is the equilibrium wage rate and amount of
employment?
b. If the city government imposes a minimum wage of $3 an hour, what is the amount of
employment? Does the minimum wage create any unemployment? Why or why not?
c. If the city government imposes a minimum wage of $6 an hour, what is the amount of
employment? Does the minimum wage create any unemployment? Why or why not?
Skill: Level 3: Using models
Section: Checkpoint 7.2
Author: JC
AACSB: Analytical reasoning
97
Copyright © 2011 Pearson Education, Inc.
7.8 Essay: Price Supports in Agriculture
1) What is a price support program in an agricultural market? Explain its impact on a market.
Skill: Level 1: Definition
Section: Checkpoint 7.3
Author: MR
AACSB: Communication
2) Who gains from a price support? Who loses? Explain how the size of the gain compares to the
size of the loss.
Skill: Level 3: Using models
Section: Checkpoint 7.3
Author: MR
AACSB: Communication
3) Suppose that producers are richer than consumers. Is a price support program fair? Explain
your answer.
Skill: Level 5: Critical thinking
Section: Checkpoint 7.3
Author: MR
AACSB: Ethical reasoning