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The figure above shows the market for sugar beets. The government intervenes in this market
and sets a support price at $35 a ton.
11) In the figure above, the quantity of sugar beets produced is ________ million tons per year,
and the quantity bought by consumers is ________ million tons per year.
A) 30; 20
B) 20; 30
C) 25; 20
D) 20; 25
E) 25; 25
12) The figure above shows that to make the price support work, the government buys ________
million tons of sugar beets.
A) 10
B) 20
C) 30
D) 5
E) 15
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
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
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.
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
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
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
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
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.
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
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
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.
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.
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
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
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
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
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
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?
2) What are the effects of a rent ceiling set below the equilibrium rent?
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.
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.
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?
6) Why do rent ceilings lead to shortages and black markets?
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?
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?
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?
7.7 Essay: Price Floors
1) Explain why a price floor set below the equilibrium price is ineffective.
2) Compare and contrast a price ceiling and a price floor.
3) Will an increase in the minimum wage create more unemployment if the supply and demand
for labor are highly elastic or highly inelastic?
4) Why would an increase in the minimum wage to $15 per hour lead to more unemployment for
teenage and low-skilled workers?
5) Explain why low-skilled workers find that their employment opportunities are less with a
minimum wage.
6) How does the elasticity of demand for labor affect the deadweight loss from an increase in the
minimum wage? Why?
7) Discuss the inefficiencies created by a price floor.
8) Who are minimum wages designed to help? Do they succeed? What is their effect on society?
9) We know that the minimum wage causes unemployment. So, why does the government
impose one?
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?
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?
7.8 Essay: Price Supports in Agriculture
1) What is a price support program in an agricultural market? Explain its impact on a market.
2) Who gains from a price support? Who loses? Explain how the size of the gain compares to the
size of the loss.
3) Suppose that producers are richer than consumers. Is a price support program fair? Explain
your answer.
