Question 1

Suppose the government imposes a binding price floor on wheat that is above the equilibrium price. What is the most likely immediate effect on the wheat market?

Accepted Answer

Quantity supplied will exceed quantity demanded, leading to a surplus.

Question 2

A binding price ceiling is imposed on gasoline after a natural disaster. Which of the following is a likely consequence?

Accepted Answer

A black market may emerge where gasoline is sold at higher prices.

Question 3

Which of the following best describes economic surplus in a market?

Accepted Answer

The difference between total value to consumers and total cost to producers for a given quantity.

Question 4

If a minimum wage is set above the equilibrium wage in a competitive labor market, what is the most likely outcome?

Accepted Answer

Unemployment will increase because the quantity of labor supplied exceeds the quantity demanded.

Question 5

Consider a market for rental housing with binding rent controls. In the long run, what is a likely effect compared to the short run?

Accepted Answer

The shortage of rental housing will increase as fewer new units are built and old units are not replaced.

Question 6

Which of the following statements about market efficiency is correct?

Accepted Answer

A market is efficient if it maximizes the total economic surplus.

Question 7

Suppose the government introduces an output quota in the dairy industry that is below the equilibrium quantity. What is the most likely effect on price and quantity traded?

Accepted Answer

Price will rise and quantity traded will decrease.

Question 8

Which of the following best explains why hidden (black) markets may arise under a binding price ceiling?

Accepted Answer

Because profit can be made by reselling goods at prices above the legal maximum.

Question 9

If the demand curve for pizza is given by $$P = 25 - 0.05Q$$ and the supply curve is $$P = 5 + 0.05Q$$, what is the equilibrium quantity?

Accepted Answer

$$Q = 200$$

Question 10

Which of the following is NOT a typical goal of imposing a price ceiling?

Accepted Answer

To maximize economic surplus.

Question 11

A binding price floor in a competitive market will have which of the following effects on economic surplus?

Accepted Answer

It will reduce total economic surplus, creating a deadweight loss.

Question 12

Which of the following is a normative judgment regarding price controls?

Accepted Answer

Rent controls are justified because they help low-income tenants.

Question 13

If the government wants to make housing more affordable for low-income households without causing shortages, which policy is most likely to achieve this goal?

Accepted Answer

Providing income assistance directly to low-income households.

Question 14

Which of the following best describes the area representing deadweight loss in a market with a binding price ceiling?

Accepted Answer

The area between the demand and supply curves for units not traded due to the price ceiling.

Question 15

Which of the following is a likely long-run effect of binding rent controls in a city?

Accepted Answer

Deterioration of existing rental units and fewer new units being built.

Question 16

Suppose a government sets an output quota for taxi licenses below the equilibrium quantity. What is a likely effect on the market for taxi rides?

Accepted Answer

The price of taxi rides will increase and fewer rides will be available.

Question 17

Which of the following statements about the distribution of economic surplus is correct?

Accepted Answer

Consumer surplus is the area below the demand curve and above the price paid.

Question 18

Which of the following is a positive analysis regarding minimum wage laws?

Accepted Answer

A binding minimum wage increases unemployment among low-skilled workers.

Question 19

If the supply curve for a product is upward sloping, what does this indicate about the cost of production?

Accepted Answer

The cost of producing each additional unit increases as output increases.

Price Controls and Market Efficiency: Microeconomics Study Notes

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