Price Ceilings, Price Floors, and Black Markets quiz #1 Flashcards
Price Ceilings, Price Floors, and Black Markets quiz #1
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What is the difference between a price floor and a price ceiling? A price ceiling is a government-imposed maximum price, while a price floor is a government-imposed minimum price. How do regulations on prices affect business practices? Price regulations can lead to shortages or surpluses, affecting production, hiring, and market strategies. What are the results of the imposition of rent controls? Rent controls, a type of price ceiling, often lead to shortages of rental units and reduced incentives for landlords to maintain properties. Which point on a supply and demand graph shows minimum wage as the price floor? The point above the equilibrium price where the price floor is set represents minimum wage. On which kinds of goods do governments generally place price ceilings? Governments typically place price ceilings on essential goods like housing and basic food items. Can prices be set too low by government intervention? Yes, if a price ceiling is set below equilibrium, it can cause shortages. Which of the following statements is true about price ceilings? Price ceilings set below equilibrium cause shortages; those above equilibrium have no effect. What are some unintended effects of rent control? Unintended effects include housing shortages, reduced maintenance, and black markets. Which of the following statements about the effects of a government setting maximum prices is true? Setting maximum prices below equilibrium leads to shortages and possible black markets. Who is likely to be in favor of a price ceiling on a good? Consumers who want lower prices are likely to favor price ceilings. Who sets the price ceiling for a product's pricing? The government sets the price ceiling. What is a potential problem with a high-low pricing strategy in regulated markets? It may conflict with price controls, leading to legal issues or market distortions. Price ceilings typically affect which of the following? Price ceilings typically affect essential goods and services. Which of the following is not an advantage of one price policies? One price policies do not allow for price discrimination or negotiation. Which of the following statements about a binding price ceiling is true? A binding price ceiling is set below equilibrium and causes a shortage. What would be true in a city with rent-controlled apartments? There would likely be a shortage of available apartments. Which of the following is an example of price gouging? Charging excessively high prices for goods during emergencies, above legal limits. Consider the graph. What is the deadweight loss associated with the price floor? Deadweight loss is the lost economic efficiency due to the surplus created by the price floor. What is the deadweight loss associated with the price floor? It is the reduction in total surplus caused by the surplus of goods or labor. Which of the following might cause the real value of money to rise in an economy? A decrease in the price level or inflation rate. Which of the following is an accurate statement about the consequence of a binding price ceiling? A binding price ceiling leads to shortages and possible black markets. A nonbinding price floor has which of the following consequences? It has no effect on the market; transactions continue at equilibrium. The risk of price escalation can be addressed by which of the following? Government intervention through price ceilings or floors. Which transaction fails to produce gains from trade for both buyers and sellers? Transactions prevented by binding price controls fail to produce gains from trade. Why are binding price floor laws passed? To ensure minimum income for producers or workers, such as minimum wage laws. A government may impose a price ceiling if which of the following is true? If prices are considered too high for essential goods, causing affordability issues. What quantity will the sellers be able to sell after the imposition of the price floor? Sellers can only sell up to the quantity demanded at the price floor, which is less than the quantity supplied. How has the international community sought to reduce the negative effects of price floors? By implementing subsidies or purchasing surpluses to support affected markets. Why does a rationing system often result in the formation of black markets? Because shortages create unmet demand, leading people to trade illegally. Who among the following benefits the most from rent control? Tenants who secure apartments at the controlled rent benefit most. Which of the following would not result from a price ceiling set below the equilibrium price? A surplus would not result; instead, a shortage occurs. Which one of the following is not a measure of the price level? Rent control is not a measure of the overall price level. Which of the following taxes has a ceiling on the amount of annual earnings subject to tax? Social Security payroll tax has a ceiling on taxable earnings. What motivates producers and consumers in the black market? Unmet demand and supply due to price controls motivate black market activity. Who sets the upper limit for a product's pricing? The government sets the upper limit through price ceilings. Which of the following is an example of a cost-oriented price setting approach? Setting prices based on production costs plus a markup. In which type of economy would prices be set by the government? In a command or centrally planned economy. Which of the following would likely cause the greatest deadweight loss? A binding price control far from equilibrium, causing large shortages or surpluses. Which of the following would most likely lead to a company initiating a price increase? An increase in production costs or demand. In reference pricing, what is used as a benchmark? A standard or competitor's price is used as a benchmark.
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