Question 1

At any disequilibrium price, whether government controlled or not, the quantity actually exchanged is determined by:

Accepted Answer

The lesser of quantity demanded and quantity supplied.

Question 2

Suppose the government imposes a price ceiling below the equilibrium price in the market for rental housing. Which of the following is most likely to occur in the short run?

Accepted Answer

A shortage of rental housing.

Question 3

If the government sets a price floor above the equilibrium price for a good, what is the likely result?

Accepted Answer

A surplus of the good.

Question 4

Consider the demand and supply equations for milk: $$	ext{Demand: } p = 225 - 15Q^D$$ and $$	ext{Supply: } p = 25 + 35Q^S. $$What is the equilibrium price and quantity?

Accepted Answer

$$p = 125$$, $$Q = 6$$

Question 5

Suppose the government guarantees milk producers a price of $$2 per litre (i.e., p = 200$ cents) and promises to buy any amount of milk that producers cannot sell. Using the demand and supply equations p = 225 - 15Q^D$ and p = 25 + 35Q^S$, how much milk will the government buy?

Accepted Answer

The government will buy $$Q = 4$$ million litres.

Question 6

If a price ceiling is imposed below the equilibrium price, what happens to total economic surplus in the market?

Accepted Answer

It decreases due to deadweight loss.

Question 7

Refer to the table: If the government imposes a price of $$0.60$$ per chocolate bar, and at that price quantity demanded is $$2450$$ and quantity supplied is $$2000$$, what is the result?

Accepted Answer

Excess demand of $$450$$ chocolate bars per week.

Question 8

Suppose the government imposes a price floor of $$1.80$$ per chocolate bar. What is a likely result?

Accepted Answer

Development of a hidden market in chocolate bars.

Question 9

In the presence of binding rent controls, the shortage of housing is smaller if:

Accepted Answer

The price elasticity of supply of housing is higher.

Question 10

Consider the following scenario: The government imposes a production quota below the free-market equilibrium quantity. What is the likely effect on total producer surplus?

Accepted Answer

Producer surplus decreases.

Question 11

Suppose the government imposes a price ceiling of $$1.00$$ per chocolate bar, and at that price quantity demanded is $$2900$$ and quantity supplied is $$1900. $$How many chocolate bars will be exchanged per week?

Accepted Answer

$$1900$$

Question 12

If the long-run elasticity of supply of rental housing is greater than the short-run elasticity, what does this imply?

Accepted Answer

Supply is more responsive to price changes in the long run.

Question 13

Refer to the figure: If the government imposes a price ceiling at $$P_2$$, which area represents the deadweight loss?

Accepted Answer

Areas 5 and 6.

Question 14

Suppose the government imposes a price floor at $$P_2 in $$the market for good X. The redistribution of surplus from consumers to producers is represented by:

Accepted Answer

Areas 2 and 3.

Question 15

Consider the market for an agricultural commodity with the following supply and demand schedules: At the free-market equilibrium, what is the total farmers' revenue?

Accepted Answer

$$9000$$

Question 16

If the government imposes a production quota of $$500$$ units in a market where the free-market equilibrium quantity is $$900$$ units, what happens to total farmers' income?

Accepted Answer

It decreases by $$700.$$

Question 17

Which of the following is an economic phenomenon often observed in the immediate aftermath of natural disasters that pits market efficiency against social responsibility?

Accepted Answer

Price gouging.

Question 18

Suppose a quota is imposed in a market, and each producer has a clear financial incentive. What is the most likely behavior?

Accepted Answer

Produce exactly their quota.

Question 19

If the government sets a price ceiling at $$1.50 in a $$burrito market where the equilibrium price is $$2.00$$, what is the likely effect on consumer and producer surplus?

Accepted Answer

Consumer surplus increases, producer surplus decreases, and deadweight loss occurs.

Question 20

Which of the following best describes a hidden market that may develop when a price ceiling is imposed below equilibrium?

Accepted Answer

A market where goods are sold at prices above the legal maximum.

Weekly Assignment 4 Microeconomics Study Guide: Price Controls, Market Equilibrium, and Economic Surplus

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