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71) If a minimum wage is introduced that is above the equilibrium wage rate,
A) the quantity of labor demanded increases.
B) job search activity increases.
C) the supply of labor increases and the supply of labor curve shifts rightward.
D) unemployment decreases because more workers accept jobs at the higher minimum wage
rate.
E) the quantity of labor supplied decreases because of the increase in unemployment.
72) The graph shows the labor market for teenagers in Atlanta. If the government sets a
minimum wage of $6 an hour, then the maximum amount that a teenager would be willing to
spend on job search is ________ an hour.
A) $2
B) $4
C) $5
D) $6
E) $3
73) The minimum wage is set above the equilibrium wage rate. Does the minimum wage create
inefficiency?
A) Yes
B) No
C) Only if the supply of labor is perfectly inelastic
D) Only if the supply of labor is perfectly elastic
E) Only if employment exceeds the efficient amount
74) A minimum wage set above the equilibrium wage rate creates
A) efficiency because it increases most workers' wages.
B) efficiency because few workers lose their jobs.
C) efficiency because workers can earn a living wage.
D) inefficiency and a deadweight loss.
E) inefficiency because it creates excessive employment.
75) The graph shows the labor market for fast-food workers in Sioux City. If the government sets
a minimum wage of $7 an hour, then the labor market is ________ and marginal benefit
________ marginal cost.
A) inefficient; is less than
B) inefficient; equals
C) efficient; equals
D) inefficient; is greater than
E) inefficient; cannot be compared to
76) When the minimum wage is raised, the ________ union labor ________.
A) demand for; increases
B) demand for; decreases
C) supply of; increases
D) supply of; decreases
E) demand for; does not change
7.3 Price Supports in Agriculture
1) The methods that governments use to support farmers vary, but they almost always involve
some or all the following methods except
A) pay farmers a subsidy.
B) introduce a price floor.
C) isolate the domestic market from global competition.
D) tax farmers.
E) use price supports.
2) A price floor in an agricultural market is called a
A) agricultural floor.
B) farm support.
C) price support.
D) farm subsidy.
E) farm support price.
3) Which of the following is true regarding a price support set above the equilibrium price?
i. The price support increases the price consumers pay.
ii. The price support creates a deadweight loss.
iii. The price support decreases output.
A) i and ii
B) i and iii
C) iii only
D) i, ii, and iii
E) i only
4) In a crop market with a price support above the equilibrium price, the total amount of the
subsidy paid to farmers is equal to the
A) quantity of the surplus crop multiplied by the support price.
B) quantity of the crop produced multiplied by the support price.
C) quantity of the crop purchased by domestic users multiplied by the support price.
D) quantity of the surplus crop multiplied by the equilibrium price.
E) quantity of the crop purchased by domestic users multiplied by the equilibrium price.
5) In the market for cotton, suppose the equilibrium price is $10 per ton and the equilibrium
quantity is 100 tons. If the government then imposes a price support of $20 per ton,
A) the market price increases.
B) the market price decreases.
C) marginal cost decreases.
D) consumer surplus increases.
E) the deadweight loss is decreased.
6) When a price support is set below the equilibrium price, producers ________ the quantity
supplied and consumers ________ the quantity demanded.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
E) do not change; do not change
7) Setting a price support in the market for sugar beets above equilibrium price ________ the
quantity produced and ________ the quantity bought by consumers.
A) decreases; decreases
B) increases; decreases
C) decreases; increases
D) increases; increases
E) does not change; increases
8) Assume a market is producing efficiently. Which type of government intervention in this
market might create a deadweight loss?
i. a price ceiling
ii. a price floor
iii. a price support
A) i only
B) i and ii
C) iii only
D) ii and iii
E) i, ii, and iii
9) A price support leads to inefficiency because
A) output is more than the efficient, equilibrium quantity.
B) the marginal benefit of the last unit produced is larger than the marginal cost.
C) the price charged is less than the equilibrium price.
D) producer surplus is less than consumer surplus.
E) producers must pay a subsidy to the government.
10) Suppose the government imposes a price support that is above the equilibrium price. As a
result,
A) total revenue increases.
B) consumer surplus increases.
C) the marginal cost of the last unit produced decreases.
D) the government has effectively imposed a price ceiling.
E) the subsidy the government pays decreases.
11) A market with a price support set above the equilibrium price,
A) consumers gain.
B) taxes on consumers decrease.
C) marginal benefit exceeds marginal cost.
D) is efficient.
E) farmers gain.
12) A price support set above the equilibrium price does which of the following?
i. decreases producer surplus
ii. decreases consumer surplus
iii. decreases the marginal cost of the last unit produced
A) i and ii
B) i and iii
C) ii and iii
D) i, ii, and iii
E) ii only
13) Suppose the equilibrium price of cotton is $100 per ton. A price support set at ________ than
$100 per ton ________.
A) less; increases producer surplus
B) less; increases consumer surplus
C) more; increases consumer surplus
D) more; decreases marginal cost
E) more; creates a surplus that the government must buy
14) In the market for cotton, suppose the equilibrium price is $10 per ton and the equilibrium
quantity is 100 tons. If the government then imposes a price support of $20 per ton,
A) marginal benefit exceeds marginal cost.
B) the market becomes more efficient
C) marginal cost decreases.
D) the government must supply some cotton to offset the shortage that results.
E) marginal cost exceeds marginal benefit.
15) In the market for cotton, suppose the equilibrium price is $10 per ton and the equilibrium
quantity is 100 tons. If the government then imposes a price support of $5 per ton,
A) a deadweight loss is created.
B) the market becomes more efficient.
C) consumer surplus increases.
D) producers' economic profits increase.
E) None of the above answers is correct.
16) The above figure shows the domestic market for wheat. Suppose this market is isolated from
global competition. The with no government intervention, the equilibrium price is ________ and
the equilibrium quantity is ________.
A) $15 per ton; 100 million tons
B) $14 per ton; 250 million tons
C) $12 per ton; 300 million tons
D) $12 per ton; 250 million tons
E) $15 per ton; 400 million tons
17) The above figure shows the domestic market for wheat. Suppose this market is isolated from
global competition and the government intervenes by setting a support price of $15 a ton. The
quantity produced once the price support is in place is
A) 400 million tons.
B) 300 million tons.
C) 100 million tons.
D) 250 million tons.
E) 200 million tons.
18) The above figure shows the domestic market for wheat. Suppose this market is isolated from
global competition and the government intervenes by setting a support price of $15 a ton. The
quantity bought by domestic users once the price support is in place is
A) 300 million tons.
B) 400 million tons.
C) 250 million tons.
D) 200 million tons.
E) 100 million tons.
19) The above figure shows the domestic market for wheat. Suppose this market is isolated from
global competition and the government intervenes by setting a support price of $15 a ton. To
keep the price at this level, the government will ________ million tons of wheat.
A) purchase 300
B) sell 400;
C) purchase 100
D) purchase 250
E) sell 300
20) The above figure shows the domestic market for wheat. Suppose this market is isolated from
global competition and the government intervenes by setting a support price of $15 a ton. As a
result of this price support, the total subsidy paid to wheat farmers equals
A) $4 billion.
B) $3 billion.
C) $3.5 billion.
D) $1.5 billion.
E) $4.5 billion
21) The above figure shows the domestic market for tomatoes. Suppose this market is isolated
from global competition and there is a support price set at $16. In this figure, what area equals
the consumer surplus?
A) area A + area B + area C
B) area A + area F
C) area C + area D + area E + area G
D) area A
E) area F
22) The above figure shows the domestic market for tomatoes. Suppose this market is isolated
from global competition and there is a support price set at $16. In this figure, what area equals
the producer surplus?
A) area A + area B + area C
B) area A + area F
C) area B + area C + area D + area F
D) area C + area D + area E + area G
E) area F
23) The above figure shows the domestic market for tomatoes. Suppose this market is isolated
from global competition and there is a support price set at $16. In this figure, what area equals
the deadweight loss?
A) area B + area C + area D + area F
B) area E
C) area C + area D + area E + area G
D) area A
E) area F
24) The above figure shows the domestic market for tomatoes. Suppose this market is isolated
from global competition and there is a support price set at $16. In this figure, what area equals
the total subsidy paid to tomato farmers?
A) area E
B) area B + area C + area D + area F
C) area C + area D + area E + area G
D) area A
E) area F
25) Price supports are generally used in
A) labor markets.
B) industrial markets.
C) housing markets.
D) markets for services.
E) agricultural markets.
26) To have an effective price support program, the government must
i. isolate the domestic market from the world market
ii. pay the farmers a subsidy
iii. introduce a price floor
A) i only
B) ii only
C) iii only
D) ii and iii
E) i, ii, and iii
27) A price support directly sets the
A) amount of production.
B) subsidy the government must receive from producers.
C) equilibrium quantity.
D) lowest price for which the good may be sold.
E) highest price for which the good may be sold.
28) To keep the price at the level set by a price support, the government must
A) buy some of the good.
B) sell some of the good.
C) receive a subsidy from the producers.
D) insure that imports are readily available.
E) be careful to always set the price support below the equilibrium price.
29) With a price support program, who receives a subsidy?
A) only consumers
B) only producers
C) the government
D) importers
E) both consumers and producers receive a subsidy
30) When a price support is set above the equilibrium price, producers ________ the quantity
supplied and consumers ________ the quantity demanded.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
E) do not change; do not change
31) An effective price support ________ producers and ________ a deadweight loss.
A) has no effect on; does not create
B) benefits; creates
C) harms; creates
D) benefits; does not create
E) harms; does not create
7.4 Chapter Figures
The figure above shows the supply and demand curves in the market for rental housing. A rent
ceiling is set at $400 per month.
1) In the figure above, with the rent ceiling the quantity of housing supplied is ________ units,
the quantity demanded is ________ units, and the quantity rented is ________ units.
A) 3,000; 6,000; 3,000
B) 3,000; 6,000; 6,000
C) 3,000; 6,000; 4,000
D) 3,000; 3,000; 3,000
E) 4,000; 4,000; 4,000
2) In the figure above, with the rent ceiling
A) there is a shortage of 3,000 units.
B) there is a surplus of 3,000 units.
C) there is a surplus of 2,000 units.
D) there is a shortage of 1,000 units.
E) the market is in equilibrium.
3) In the figure above, with the rent ceiling ________ units of housing are available, and black
market rents might be as high as ________ a month.
A) 3,000; $625
B) 6,000; $400
C) 3,000; $550
D) 4,000; $550
E) 4,000; $625
The figure above shows the supply and demand curves in the market for rental housing. A rent
ceiling is set at $400 per month.
4) As shown in the figure above, the rent ceiling
A) decreases consumer surplus.
B) increases producer surplus.
C) decreases deadweight loss.
D) increases the quantity of housing rented.
E) is efficient.
5) As shown in the figure above, the rent ceiling ________ consumer surplus and ________
producer surplus.
A) decreases; decreases
B) decreases; increases
C) increases; increases
D) increases; decreases
E) decreases; does not change
The figure above shows supply and demand in the market for labor. The government introduces
a minimum wage of $7 per hour.
6) In the figure above, the number of workers employed is ________, and the wage paid is
________.
A) 3,000; $7 per hour
B) 7,000; $7 per hour
C) 5,000; $5 per hour
D) 5,000; $7 per hour
E) 3,000; $5 per hour
7) In the figure above, the number of unemployed workers is
A) 4,000.
B) 3,000.
C) 2,000.
D) 5,000.
E) zero.
8) The figure above shows that the lowest wage rate for which someone is willing to work is
A) $3 an hour.
B) $5 an hour.
C) $6 an hour.
D) $7 an hour.
E) $4 an hour.
9) In the figure above, the deadweight loss is
A) $4,000 an hour.
B) $2,000 an hour.
C) $1,000 an hour.
D) $5,000 an hour.
E) zero.
10) The figure above shows that the value of the resources used in job-search activity can be as
large as ________ per hour.
A) $12,000
B) $8,000
C) $6,000
D) $4,000
E) $2,000
