Q: Consider a market with the following demand and supply equations: $$Q_D = 100 - 2P$$ and $$Q_S = 4P. If $$the government imposes a price floor at $$P = 20$$, what is the resulting surplus?

$$Q_S - Q_D = 4 \times 20 - (100 - 2 \times 20) = 80 - 60 = 20$$

Q: Suppose the government sets a price ceiling on bread at $$2$$, but the equilibrium price is $$3. $$What will be the quantity demanded and supplied if $$Q_D = 50 - 5P$$ and $$Q_S = 10 + 2P$$?

$$Q_D = 50 - 5 \times 2 = 40$$, $$Q_S = 10 + 2 \times 2 = 14$$

Question 1

Suppose the government sets a price ceiling below the equilibrium price in the market for rental apartments. Which of the following is the most likely outcome?

Accepted Answer

A shortage of apartments, as quantity demanded exceeds quantity supplied.

Question 2

A government imposes a price floor on wheat that is above the equilibrium price. What is the most likely result?

Accepted Answer

A surplus of wheat, as producers supply more than consumers demand.

Question 3

If the government sets a binding price ceiling on gasoline, which of the following is a likely unintended consequence?

Accepted Answer

Long lines at gas stations due to shortages.

Question 4

Which of the following equations represents the condition for market equilibrium in the absence of price controls?

Accepted Answer

$$Q_D = Q_S$$

Question 5

Suppose the government imposes a quota that limits the quantity of taxis in a city. What is the most likely effect on the price of taxi rides?

Accepted Answer

The price will increase due to restricted supply.

Question 6

A binding price floor is set in the labor market (minimum wage) above the equilibrium wage. What is the likely effect on employment?

Accepted Answer

Unemployment increases as quantity of labor supplied exceeds quantity demanded.

Question 7

If a price ceiling is set at $$P_c$$ and the equilibrium price is $$P^*$$, which of the following must be true for the ceiling to be binding?

Accepted Answer

$$P_c \u003c P^*$$

Question 8

Consider a market with the following demand and supply equations: $$Q_D = 100 - 2P$$ and $$Q_S = 4P. If $$the government imposes a price floor at $$P = 20$$, what is the resulting surplus?

Accepted Answer

$$Q_S - Q_D = 4 	imes 20 - (100 - 2 	imes 20) = 80 - 60 = 20$$

Question 9

Which of the following best describes a quota in a market?

Accepted Answer

A legal restriction on the quantity of a good that can be bought or sold.

Question 10

Suppose the government sets a price ceiling on bread at $$2$$, but the equilibrium price is $$3. $$What will be the quantity demanded and supplied if $$Q_D = 50 - 5P$$ and $$Q_S = 10 + 2P$$?

Accepted Answer

$$Q_D = 50 - 5 	imes 2 = 40$$, $$Q_S = 10 + 2 	imes 2 = 14$$

Question 11

Which of the following is a likely effect of a binding quota on the taxi market in a large city?

Accepted Answer

Higher prices for taxi rides due to restricted supply.

Question 12

If a price floor is set below the equilibrium price, what is the effect on the market?

Accepted Answer

It is non-binding and has no effect.

Question 13

A city government limits the number of ride-sharing vehicles allowed to operate. What is the most likely effect on consumer surplus?

Accepted Answer

Consumer surplus decreases due to higher prices and limited availability.

Question 14

Which of the following best explains why black markets may arise when price ceilings are imposed?

Accepted Answer

Because shortages created by price ceilings incentivize illegal sales at higher prices.

Question 15

Suppose the government imposes a quota that restricts the quantity of a good to $$Q_{quota}$$, which is less than the equilibrium quantity $$Q^*. $$What is the likely effect on the price?

Accepted Answer

The price will rise above equilibrium.

Question 16

Which of the following is NOT a likely consequence of a binding price floor?

Accepted Answer

A shortage of the good.

Question 17

If the government sets a quota at $$Q_{quota}$$, which is less than the equilibrium quantity $$Q^*$$, what happens to the deadweight loss in the market?

Accepted Answer

Deadweight loss increases due to lost gains from trade.

Question 18

A city government sets a maximum rent for apartments at $$500$$, but the equilibrium rent is $$800. $$What is the likely effect on the quality of apartments offered?

Accepted Answer

Quality will decrease as landlords have less incentive to maintain apartments.

Question 19

Suppose the supply and demand for a good are given by $$Q_S = 2P$$ and $$Q_D = 100 - P. If a $$quota is set at $$Q = 40$$, what is the quota rent (the difference between the price consumers pay and the price producers receive)?

Accepted Answer

Quota rent is $$P_D - P_S = 60 - 20 = 40$$

Question 20

Which of the following best describes the effect of a binding price ceiling on producer surplus?

Accepted Answer

Producer surplus decreases due to lower prices and reduced quantity sold.

Price and Quantity Controls in Markets

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