Question 1

Suppose the government sets a binding price floor above the equilibrium price in the wheat market. Which of the following will most likely occur as a result?

Accepted Answer

A surplus of wheat, as quantity supplied exceeds quantity demanded.

Question 2

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

Accepted Answer

Excess demand and the emergence of a black market.

Question 3

If the government imposes a minimum wage above the equilibrium wage, what is the most likely effect on the labor market?

Accepted Answer

Employment decreases and unemployment increases.

Question 4

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

Accepted Answer

The area below the demand curve and above the supply curve.

Question 5

Consider a market for rental housing with a binding rent control set below the equilibrium rent. In the long run, what is the most likely outcome?

Accepted Answer

The shortage of rental accommodations worsens.

Question 6

Suppose the demand for pizzas is given by $$P = 25 - 0.05Q$$ and the supply is $$P = 5 + 0.03Q. $$What is the equilibrium quantity?

Accepted Answer

$$Q = 250$$

Question 7

Which of the following statements about deadweight loss is correct?

Accepted Answer

Deadweight loss is the reduction in economic surplus caused by market interventions such as price floors, price ceilings, or quotas.

Question 8

A government sets an output quota in the dairy market, restricting output to $$Q_1$$ units, below the equilibrium quantity $$Q_0. $$What is the effect on price and economic surplus?

Accepted Answer

Price rises to $$p_1$$ and economic surplus decreases.

Question 9

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

Accepted Answer

To maximize producer surplus.

Question 10

If a binding price ceiling is imposed, which of the following allocation methods is most likely to emerge?

Accepted Answer

First-come, first-served allocation.

Question 11

Which group is most likely to benefit from rent controls in the short run?

Accepted Answer

Existing tenants in rent-controlled accommodations.

Question 12

Suppose the government provides income assistance to low-income households instead of imposing rent controls. What is a likely effect?

Accepted Answer

The rental housing market remains efficient, and affordability for low-income households increases.

Question 13

In a market with a binding price floor, which of the following best describes the actual quantity exchanged?

Accepted Answer

It is determined by the quantity demanded at the floor price.

Question 14

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

Accepted Answer

Rent controls help tenants more than they harm landlords.

Question 15

If the market demand for a product is interpreted as 'value' and the market supply as 'cost,' what does the area between the demand and supply curves up to the equilibrium quantity represent?

Accepted Answer

Total economic surplus.

Question 16

A black market for a good is most likely to emerge under which of the following conditions?

Accepted Answer

A binding price ceiling is set below equilibrium.

Question 17

Which of the following best explains why governments sometimes impose inefficient price controls?

Accepted Answer

To help specific groups, even if overall efficiency is reduced.

Question 18

Suppose the government imposes a quota that restricts output below the equilibrium quantity. What is the effect on the market price and deadweight loss?

Accepted Answer

Market price rises and deadweight loss increases.

Question 19

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

Accepted Answer

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

Question 20

If the value consumers place on the 100th pizza is $$20 and the additional cost to firms of producing the 100th pizza is 5$$, what is the economic surplus generated by this pizza?

Accepted Answer

$$15$$

Price Controls and Market Efficiency: Microeconomics Study Notes

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