1. A price ceiling is a government-mandated
a.
minimum price below which legal trades cannot be made.
b.
maximum price above which legal trades cannot be made.
c.
minimum price above which legal trades cannot be made.
d.
maximum price below which legal trades cannot be made.
2. Which of the following would not result from a price ceiling (set below the equilibrium price)?
a.
a shortage
b.
fewer exchanges
c.
an increase in supply
d.
nonprice rationing devices
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3. Suppose the government imposes a price ceiling above the equilibrium price of a given good. Which of the following is
the most likely result?
a.
Some other rationing device will emerge to allocate the good among buyers.
b.
Some buyers and sellers will be willing to risk breaking the law in order to exchange the good at a price above
the equilibrium price since there would be a shortage of the good at the price ceiling.
c.
No change will occur in the market.
d.
Brute force will be used to allocate the good among buyers.
e.
a, b, and d
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4. Suppose you live in New York City and the government has imposed price ceilings on apartment rental rates. You want
to rent an apartment from Smith, who says that unless you buy the furniture in the apartment for $4,000, he cannot rent the
apartment to you. The condition of buying the furniture could be considered
a.
a price ceiling.
b.
a price floor.
c.
a tie-in sale.
d.
to be something no renter would agree to.
e.
c and d
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5. Jake is an excellent barber. However, all customers who come to him for a haircut must buy a bottle of shampoo. This
type of arrangement is known as
a.
a tie-in sale.
b.
a sweetheart deal.
c.
an exclusive contract.
d.
a cross subsidy.
1
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Exhibit 4-1
6. Refer to Exhibit 4-1. The number of units exchanged at the price ceiling is
a.
75.
b.
125.
c.
175.
d.
100.
1
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7. Refer to Exhibit 4-1. How many fewer units are exchanged because of the price ceiling than would have been
1
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exchanged at the equilibrium price?
a.
50
b.
60
c.
65
d.
100
8. Refer to Exhibit 4-1. Suppose the good shown is being sold at the $6 price ceiling. At a quantity of 75 units, what is the
maximum per-unit price buyers would be willing to pay for a good “tied” to the good shown in the exhibit?
a.
$10
b.
$8
c.
$6
d.
$4
e.
none of the above
d
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9. Refer to Exhibit 4-1. Some buyers will offer sellers $7 per unit instead of the $6 price ceiling because
a.
$7 is closer to the equilibrium price and buyers prefer equilibrium prices to all others.
b.
they think it is only fair for sellers to receive higher prices.
c.
they want to increase their chances of buying a good for which there is a shortage.
d.
it is customary to pay more than the price ceiling.
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10. Refer to Exhibit 4-1. In a free market, ________ units of the good would be exchanged. With a price ceiling, _______
units of the good would be exchanged.
a.
125; 75
b.
75; 125
c.
175; 125
d.
125; 175
1
Challenging
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11. Which of the following statements is true?
a.
Price ceilings set below the equilibrium price cause shortages.
b.
Surpluses result when a price floor is set above the equilibrium price.
c.
Price ceililngs set above the equilibrium price cause surpluses.
d.
Price ceilings are set by the market and price floors are set by the government.
e.
a and b
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12. Which of the following is true?
a.
Buyers always prefer lower prices to higher prices.
b.
Buyers never prefer lower prices to higher prices.
c.
Buyers rarely prefer lower prices to higher prices.
d.
Buyers prefer lower prices to higher prices, ceteris paribus.
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13. A price floor is a government-mandated
a.
minimum price below which legal trades cannot be made.
b.
maximum price above which legal trades cannot be made.
c.
minimum price at which all units of the good must be legally sold.
d.
minimum price below which legal trades can be made.
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14. One of the effects of a price floor (set above equilibrium price) is
a.
a surplus.
b.
higher-quality goods are produced.
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c.
more satisfied customers.
d.
all of the above
e.
none of the above
15. Suppose the government sets a price floor that is above the equilibrium price for a given good. It can be said that at the
price floor,
a.
although sellers are selling all of the product that they desire at this price, the consumers are not able to buy all
that they desire.
b.
although consumers are purchasing all of the product that they desire at this price, the sellers are not selling all
that they desire.
c.
both sellers and buyers are satisfied with the quantity that is being exchanged.
d.
both sellers and buyers are exchanging the equilibrium quantity of this good.
e.
b and d
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Exhibit 4-2
16. Exhibit 4-2 represents the orange juice market. The horizontal line represents a price ceiling imposed by the
government. Which of the following is true?
a.
At equilibrium, the quantity demanded is 700 units.
b.
At the price ceiling, there is a surplus of orange juice.
c.
The quantity supplied at the price ceiling will equal the quantity exchanged.
d.
The quantity demanded at the price ceiling will equal the quantity supplied.
e.
The quantity demanded at the price ceiling will equal the quantity exchanged.
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17. Exhibit 4-2 represents the orange juice market. The horizontal line at $2 shows a price ceiling imposed by the
government. Which of the following statements is true at this price?
a.
At the price ceiling the surplus equals 400 units.
b.
At the price ceiling the shortage equals 400 units.
c.
At the price ceiling the surplus equals 300 units.
d.
At the price ceiling the shortage equals 200 units.
e.
none of the above
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18. A price floor (set above the equilibrium price) on rice will
a.
force otherwise profitable farmers out of business.
b.
result in a shortage of rice.
c.
result in a surplus of rice.
d.
clear the market for rice.
e.
both a and b
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19. A price ceiling set below the equilibrium price will
a.
clear the market for the good.
b.
result in a shortage of the good.
c.
result in a surplus of the good.
d.
induce new firms to enter the industry.
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20. A price floor set above the equilibrium price will
a.
clear the market for the good.
b.
result in a shortage of the good.
c.
result in a surplus of the good.
d.
force some firms in this industry to go out of business.
21. Price ceilings and price floors
a.
shift demand and supply curves and therefore have no effect upon the rationing function of prices.
b.
interfere with the rationing function of prices.
c.
make the rationing function of free markets more efficient.
d.
cause surpluses and shortages, respectively.
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Exhibit 4-3
22. Refer to Exhibit 4-3. If price P1 is a price ceiling, then
a.
there is a surplus in the market for good X.
b.
the highest price that can legally be charged in this market is P3.
c.
the price at which exchange legally takes place is P2.
d.
the price at which exchange legally takes place is P1.
e.
both a and b
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23. Refer to Exhibit 4-3. If price P2 is a price ceiling, then
a.
there is a shortage in the market for good X.
b.
the highest price that can legally be charged in this market is P3.
c.
the price at which exchange legally takes place in the market for good X is P2.
d.
the quantity exchanged is less than the quantity demanded.
e.
all of the above
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24. Refer to Exhibit 4-3. If price P3 is a price ceiling, then
a.
the price ceiling does not have an effect on the market for good X.
b.
the price at which exchange takes place is P3.
c.
the price at which exchange takes place is P2.
d.
there is a shortage in the market for good X.
e.
both a and c
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25. Refer to Exhibit 4-3. Which of the following is true?
a.
If price P3 is set as a price ceiling it will have an effect on the market for good X.
b.
If price P3 is set as a price floor it will have an effect on the market for good X.
c.
Price P3 is the equilibrium price for good X.
d.
Price P3 is the highest price that can legally be charged in the market for good X.
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26. Refer to Exhibit 4-3. If price P1 is a price ceiling, then
a.
the quantity exchanged is Q3.
b.
there is a shortage in this market.
c.
it is the highest price that can legally be charged in this market.
d.
both b and c.
e.
all of the above
27. Refer to Exhibit 4-3. If price P1 is a price floor, then
a.
the quantity exchanged is Q1.
b.
there is a surplus in the market for good X.
c.
it is the lowest price that can legally be charged in the market for good X.
d.
both b and c
e.
all of the above
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28. Refer to Exhibit 4-3. If P1 is a price ceiling, the highest price for good Y, which is tied (a tie-in sale) to good X, is
a.
P1.
b.
P2.
c.
P3.
d.
P3 – P1.
e.
P1 + P2.
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29. Refer to Exhibit 4-3. If P1 is a price ceiling, the maximum (per-unit) amount buyers are willing to pay to purchase Q1
units is
a.
P1.
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b.
P2.
c.
P3.
d.
P1 + P2.
e.
P3 – P1.
30. Refer to Exhibit 4-3. Which of the following is true?
a.
If price P1 is set as a price ceiling it will have an effect on the market for good X.
b.
If price P1 is set as a price floor it will have an effect on the market for good X.
c.
Price P1 is the equilibrium price for good X.
d.
If price P1 is set as a price floor, then it is the highest price that can legally be charged in the market for good
X.
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Situation 4-1
During the winter of 1973-74, a general system of wage and price
controls (including a price ceiling on gasoline) was in force in the
United States. At the beginning of 1974, some oil-producing
countries imposed an oil embargo (a legal prohibition on commerce)
on the West. In the spring of 1974, price controls were abolished.
31. Refer to Situation 4-1. Before the oil embargo, the price ceiling on gasoline had no noticeable effect on the market.
What is the most likely explanation for this?
a.
The equilibrium price of gasoline was probably below the price ceiling.
b.
The demand curve for gasoline in the 1970s was vertical.
c.
The supply curve for gasoline in the 1970s was vertical.
d.
The equilibrium price of gasoline was probably above the price ceiling.
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32. Refer to Situation 4-1. An economist would have most likely predicted that the oil embargo imposed in 1974 would
result in a
a.
leftward shift in the supply (curve) of gasoline.
b.
rightward shift in the supply (curve) of gasoline.
c.
leftward shift in the demand (curve) for gasoline.
d.
rightward shift in the demand (curve) for gasoline.
e.
both a and d
33. Refer to Situation 4-1. If no price controls had been in place, the effect of the oil embargo on the equilibrium price and
quantity of gasoline would have been
a.
an increase in both price and quantity.
b.
an increase in price and a decrease in quantity.
c.
a decrease in price and an increase in quantity.
d.
a decrease in both price and quantity.
b
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34. Refer to Situation 4-1. Because price controls were in effect at the time the embargo occurred, an economist would
have most likely predicted that
a.
the number of dollars one would need to pay at the pump (legally) for a full tank of gasoline would increase
sharply.
b.
the number of dollars one would need to pay at the pump (legally) for a full tank of gasoline would decline
sharply.
c.
long waiting lines and black markets would appear.
d.
a surplus of gasoline would result.
Challenging
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35. Refer to Situation 4-1. An economist would have most likely predicted that once price controls were abolished in the
spring of 1974,
a.
the price of gasoline would decline sharply.
b.
the surplus of gasoline would go away.
c.
the shortage of gasoline would go away.
Moderate
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d.
the demand for gasoline would decrease.
e.
both c and d
Exhibit 4-4
36. Refer to Exhibit 4-4. Which of the following statements is false?
a.
Graph (1): A price ceiling set at P2 would not have an impact on the market.
b.
Graph (2): As supply increases, equilibrium price remains constant.
c.
Graph (3): As demand increases, equilibrium quantity remains constant.
d.
Graph (4): As supply increases, equilibrium quantity increases.
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37. Refer to Exhibit 4-4. Which of the following is false?
a.
Graph (1): There is a shortage when price is P3.
b.
Graph (2): As supply increases, equilibrium quantity remains constant.
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c.
Graph (3): As demand increases, equilibrium price remains constant.
d.
Graph (4): As supply changes, equilibrium price stays the same.
38. If the current market price of good Z is below the equilibrium price of good Z
a.
it must be because the government has imposed a price ceiling in the market for good Z.
b.
there is a shortage of good Z.
c.
there is a surplus of good Z.
d.
demand must necessarily decrease to restore equilibrium.
e.
a and b
b
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39. If the price of good X is $50 and the price of good Y is $25, it follows that the relative price of one unit of good X is
_____________ unit(s) of good Y.
a.
1.00
b.
2.00
c.
0.75
d.
1.33
e.
0.50
b
1
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New
40. If the price of good X is $100 and the price of good Y is $40, it follows that the relative price of one unit of good Y is
___________ unit(s) of good X.
a.
0.40
b.
0.20
c.
2.50
d.
4.00
e.
There is not enough information to answer the question.
1
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41. If the price of good X is $90 and the price of good Y is $30, it follows that the relative price of one unit of good Y is
___________ unit(s) of good X.
a.
0.33
b.
1.33
c.
3.00
d.
2.00
e.
There is not enough information to answer the question.
1
Moderate
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New
42. There are two goods in the economy, apples and bread. The relative price of apples has increased. This could be due to
a.
an increase in the absolute price of apples, ceteris paribus.
b.
a decrease in the absolute price of bread, ceteris paribus.
c.
a decrease in the absolute price of apples, ceteris paribus.
d.
an increase in the absolute price of bread, ceteris paribus.
e.
a and b
1
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43. If the absolute price of a new car is $40,000 and the relative price of a laptop computer in terms of cars is 1/40 of a
car, it follows that the absolute price of the laptop is
a.
$10,000.
b.
$1,000.
c.
$4,000.
d.
$2,000.
e.
$1,500.
b
1
Moderate
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Moderate
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New
44. If the absolute price of a computer is $500 and the relative price of a dining room table is 3 computers, it follows that
the absolute price of a dining room table is
a.
$167.
b.
$750.
c.
$3,000.
d.
$30,000.
e.
none of the above
1
Moderate
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New
45. If the relative price of one unit of good X is 5 units of good Y, then it follows that the absolute price of good X can be
__________ and the absolute price of good Y can be __________.
a.
$20,000; $10,000
b.
$40,000; $8,000
c.
$30,000; $5,0000
d.
$5,000; $40,000
e.
a and c
b
1
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46. If the relative price of one unit of good Y is 0.25 units of good Z, then it follows that the absolute price of good Z can
be __________ and the absolute price of good Y can be __________.
a.
$4,000; $2,000
b.
$1,000; $2,000
c.
$2,000; $1,000
d.
a and c
e.
none of the above
1
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Bloom’s: Application
New
47. A shortage of kidneys (for transplants) results from
a.
the legal price being set below the equilibrium price.
b.
the legal price being set above the equilibrium price.
c.
a price floor being set in the kidney market at P = $0, assuming the equilibrium price is greater than $0.
d.
a price ceiling being set in the kidney market at P = $0, assuming the equilibrium price is greater than $0.
e.
a and d
48. Which of the following statement is false based on information presented in the textbook?
a.
There is evidence of a shortage in the market for kidneys (for transplants).
b.
The waiting list for transplanted kidneys is used as a non-price rationing device.
c.
There is a price ceiling in the market for transplanted kidneys at a price of $0.
d.
In the market for transplanted kidneys the legal price is the same as the equilibrium price.
e.
It is currently unlawful to buy or sell kidneys at any positive price.
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Exhibit 4-5
49. Refer to Exhibit 4-5. Suppose the government imposes a price ceiling at P = $0 for transplanted kidneys. The result
will be a
a.
shortage of kidneys equal to (Q3 – Q1).
b.
surplus of kidneys equal to (Q3 – Q1).
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c.
shortage of kidneys equal to (Q2 – Q1).
d.
surplus of kidneys equal to (Q2 – Q1).
50. Refer to Exhibit 4-5. If a free market were allowed in the transplanted kidney market, then the equilibrium price would
be P2. The number of kidneys transplanted would increase by _________ compared to the number transplanted at a price
ceiling of P= $0.
a.
(Q3 – Q1)
b.
(Q3 – Q2)
c.
(Q2 – Q1)
d.
Q2
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51. If the minimum wage law sets a price floor above the equilibrium wage in the market for unskilled labor, then the
a.
minimum wage will create a surplus of unskilled labor.
b.
minimum wage will create a shortage of unskilled labor.
c.
minimum wage will not impact the unskilled labor market.
d.
unskilled labor market will change, but we cannot be certain how.
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52. If the minimum wage law sets a wage floor below the equilibrium wage in the market for unskilled labor, then the
a.
minimum wage will create a surplus of unskilled labor.
b.
minimum wage will create a shortage of unskilled labor.
c.
minimum wage will not impact the unskilled labor market.
d.
unskilled labor market will change, but we cannot be certain how.
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