81
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13) The figure above shows that the government provides a subsidy to the farmers of ________
million.
A) $350
B) $1,050
C) $50
D) $100
E) $700
Skill: Level 3: Using models
Section: Checkpoint 7.3
Author: CO
AACSB: Analytical reasoning
14) The figure above shows that the government subsidy accounts for ________ percent of the
farmers’ revenue.
A) 33
B) 67
C) 50
D) 100
E) 25
Skill: Level 3: Using models
Section: Checkpoint 7.3
Author: CO
AACSB: Analytical reasoning
15) The figure above shows that the deadweight loss from the government’s policy is
A) about $350 million.
B) about $25 million.
C) about $50 million.
D) about $100 million.
E) zero.
Skill: Level 3: Using models
Section: Checkpoint 7.3
Author: CO
AACSB: Analytical reasoning
82
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7.5 Integrative Questions
1) The shortage created by a rent ceiling below the equilibrium rent is smallest when the demand
for housing is ________ and the supply of housing is ________.
A) elastic; elastic
B) elastic; inelastic
C) inelastic; elastic
D) inelastic; inelastic
E) unit elastic; unit elastic
Skill: Level 3: Using models
Section: Integrative
Author: MR
AACSB: Analytical reasoning
2) A regulation that sets the highest price at which it is legal to trade a good is a
A) production quota.
B) price floor.
C) price support.
D) price ceiling.
E) subsidy
Skill: Level 1: Definition
Section: Integrative
Author: MR
AACSB: Reflective thinking
3) A regulation that sets the lowest price at which it is legal to trade a good is a
A) search ceiling.
B) price floor.
C) production ceiling.
D) price ceiling.
E) subsidy
Skill: Level 1: Definition
Section: Integrative
Author: MR
AACSB: Reflective thinking
83
Copyright © 2011 Pearson Education, Inc.
4) If the government imposes an effective ________, output decreases and ________ increases.
A) price support; consumer surplus
B) price floor; consumer surplus
C) price support; total revenue
D) price floor; marginal benefit to consumers
E) price ceiling; efficiency
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Analytical reasoning
5) If the government imposes an effective ________, a deadweight loss ________.
A) price floor; does not occur
B) price ceiling; does not occur
C) price ceiling; occurs
D) price support; does not occur
E) Both answers C and D are correct.
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Reflective thinking
6) Producers favor a ________ because ________.
A) price ceiling; the equilibrium price increases
B) price support; the deadweight loss is minimized
C) price ceiling; total revenue increases
D) price support; total revenue increases
E) price ceiling; consumer surplus increases
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Reflective thinking
84
Copyright © 2011 Pearson Education, Inc.
7) In order to have an impact, a ________ must be set below the equilibrium price and when this
occurs, ________.
A) price ceiling; consumer surplus increases
B) price floor; consumer surplus decreases
C) price ceiling; producer surplus decreases
D) price support; total revenue increases
E) price support; consumer surplus increases
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Analytical reasoning
8) Which of the following describes a difference between a price support and a price ceiling?
A) A price support creates a deadweight loss while a price ceiling does not.
B) A price ceiling is a regulated price while a price support is a regulated quantity.
C) A price support decreases the quantity while a price ceiling does not.
D) A price ceiling increases the price above the equilibrium price while a price support does not.
E) A price support attempts to raise the price above the equilibrium price while a price ceiling
does not.
Skill: Level 3: Using models
Section: Integrative
Author: CD
AACSB: Reflective thinking
9) Both price supports and a price floor can
A) create a deadweight loss.
B) decrease output below the equilibrium quantity.
C) decrease the price below the equilibrium price.
D) increase consumer surplus.
E) have no effect on producer surplus.
Skill: Level 3: Using models
Section: Integrative
Author: MR
AACSB: Reflective thinking
85
Copyright © 2011 Pearson Education, Inc.
10) Which of the following is true?
i. A price ceiling set above the equilibrium price has no effects.
ii. A price ceiling set below the equilibrium price creates a surplus.
iii. A price floor set above the equilibrium price has no effects.
A) Only i
B) Only ii
C) Only iii
D) i and ii
E) ii and iii
Skill: Level 2: Using definitions
Section: Integrative
Author: CO
AACSB: Reflective thinking
11) Which of the following is true?
i. A price ceiling is inefficient but fair.
ii. A price floor is inefficient and unfair.
iii. A price support increases the quantity produced.
A) Only i
B) Only ii
C) Only iii
D) i and ii
E) ii and iii
Skill: Level 2: Using definitions
Section: Integrative
Author: CO
AACSB: Reflective thinking
12) Which of the following is true?
i. A price ceiling set below the equilibrium price decreases search activity.
ii. A minimum wage is an example of a price ceiling.
iii. A price support decreases the quantity consumed.
A) Only i
B) Only ii
C) Only iii
D) i and iii
E) ii and iii
Skill: Level 2: Using definitions
Section: Integrative
Author: CO
AACSB: Reflective thinking
86
Copyright © 2011 Pearson Education, Inc.
13) Which of the following is true?
i. A price support is inefficient.
ii. A price floor set above the equilibrium price creates a surplus.
iii. A price ceiling set above the equilibrium price creates a black market.
A) Only i
B) Only ii
C) Only iii
D) i and ii
E) ii and iii
Skill: Level 2: Using definitions
Section: Integrative
Author: CO
AACSB: Reflective thinking
14) Which of the following can create a deadweight loss?
i. price supports
ii. price floor
iii. price ceiling
A) i only
B) i and iii
C) ii and iii
D) i, ii and iii
E) i and ii
Skill: Level 3: Using models
Section: Integrative
Author: MR
AACSB: Reflective thinking
7.6 Essay: Price Ceilings
1) In the housing market, if a rent ceiling of $600.00 is imposed when the equilibrium rent is
$500.00, why will nothing change?
Skill: Level 3: Using models
Section: Checkpoint 7.1
Author: SA
AACSB: Analytical reasoning
87
Copyright © 2011 Pearson Education, Inc.
2) What are the effects of a rent ceiling set below the equilibrium rent?
Skill: Level 3: Using models
Section: Checkpoint 7.1
Author: CD
AACSB: Communication
3) In the 1980s, one of the most common sights in the socialist countries, such as the former
Soviet Union and North Korea, were long lines for bread, sugar, and other necessities. These
countries had price ceilings on these necessities. Some of the socialist nations, such as the former
Soviet Union, have moved to a market economy by lifting the price ceilings, while others, such
as North Korea, have retained their price ceilings. What prediction do you make about the
presence (or absence) of long lines today in the former Soviet Union and North Korea? Explain
your answer.
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Author: SA
AACSB: Communication
4) Explain why in cities such as New York City that have rent ceiling laws, so many people who
work in the city commute from outside the city.
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Author: TA
AACSB: Communication
88
Copyright © 2011 Pearson Education, Inc.
5) Suppose that apartments rent for $1,300 a month in San Francisco, California and $850 a
month in Los Angeles, California. If the state of California passes a state-wide rent ceiling for
apartments of $1,100 a month, what occurs in the two cities?
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Author: JC
AACSB: Communication
6) Why do rent ceilings lead to shortages and black markets?
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Author: JC
AACSB: Communication
89
Copyright © 2011 Pearson Education, Inc.
7) The table above gives the demand and supply schedules for the housing market in a small
town. If a rent ceiling of $600 a month is imposed, what is the quantity demanded, the quantity
supplied, and the shortage of housing?
Skill: Level 3: Using models
Section: Checkpoint 7.1
Author: TS
AACSB: Analytical reasoning