number of undesirable and seemingly unantici-
pated consequences.
Study Problems
1. At $7.25 per hour, an individual will make $290
per week, or about $15,000 per year. The poverty
threshold (in 2015) for an individual under the
age of 65 was $12,331 per year, so the $15,000
3. a. The quantity of choco late demanded will
decrease, as the artificially high price causes
consumers to seek out substitutes for
demand of choco late will become more elastic
as longer time horizons are considered and
consumers and producers have more exibil-
ity in their choices, and this will cause bigger
effects on the quantities supplied and
demanded in response to a movement of price
away from the equilibrium price.
able to attend the games, as the number of seats in
a stadium is fixed, and teams have no incentive
under a price ceiling to restrict the number of tick-
ets sold. Teams and events for which there is more
Questions for Review
1. A binding price ceiling causes a shortage in a
market because the mandated below– equilibrium
price generally reduces the quantity supplied and
increases the quantity demanded, resulting in a
situation where demand exceeds supply. An
example of a binding price ceiling is rent control,
which results in landlords not wanting to supply
ket because the mandated above- equilibrium
price generally increases the quantity supplied
and reduces the quantity demanded, resulting in
a situation where supply exceeds demand. An
3. The supply and demand imbalances caused by
price controls become larger over time because
supply and demand are generally more elastic in
the long run than in the short run. Therefore,
deviations from market equilibrium prices have
larger effects on quantity supplied and quantity
demanded when the time period considered is
longer.
market price when a price control is nonbinding.
6. The government attempts to control prices either
because it is trying to protect disadvantaged con-
Solutions to Chapterfi6 Text Prob lems
d. If the minimum wage is $6, the price oor is
nonbinding and therefore has no effect on
prices at concession stands. If the government
were to regulate the prices of popcorn and other
items at movie theater concession stands, the
movie theaters would potentially go out of busi-
ness. Allowing movie theaters to profit from
higher prices on popcorn, drinks, and candies
12. a. Incorrect. Although there will be an increase
in the number of people wanting to rent,
there will be a decrease in the number of units
available, due to some prospective landlords
deciding that $750 per month is not enough
to justify renting out a unit. In other words,
5. When local governments set the price too low,
they essentially create a price ceiling that results
dimension.
6. Communities lose jobs when a binding mini-
mum wage is enacted because the minimum
wage requirement causes firms to demand less
labor (as labor becomes more expensive), and
demand is the limiting factor when a price oor
8. a.
Q
D “ QS
53,000,000 3,000,000W “ 10,000,000
6,000,000W
63,000,000 “ 9,000,000W
W