Question 1

Suppose the government sets a binding price floor above the equilibrium price in the wheat market. Which of the following outcomes is most likely to occur?

Accepted Answer

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

Question 2

A binding price ceiling is imposed on gasoline. What is the most likely result in the market?

Accepted Answer

Quantity demanded will exceed quantity supplied, resulting in a shortage.

Question 3

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

Accepted Answer

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

Question 4

If a minimum wage (a price floor) is set above the equilibrium wage in a competitive labor market, what is the most likely effect?

Accepted Answer

Employment will decrease and unemployment will increase.

Question 5

Consider a market with the following demand and supply equations: $$Q_D = 100 - 2P$$ and $$Q_S = 4P. $$What is the equilibrium price?

Accepted Answer

$$P = 20$$

Question 6

Which of the following is a likely unintended consequence of a binding rent control policy in a large city?

Accepted Answer

A shortage of rental housing and the emergence of black markets.

Question 7

A binding price ceiling on a good will cause which of the following?

Accepted Answer

The quantity exchanged will be determined by the supply curve at the ceiling price.

Question 8

Suppose the government imposes an output quota that restricts production to $$Q_1$$, below the free-market equilibrium $$Q_0. $$What is the effect on market efficiency?

Accepted Answer

There is a deadweight loss equal to the area between the demand and supply curves from $$Q_1 to$$ $$Q_0.$$

Question 9

Which of the following statements about black markets is correct?

Accepted Answer

Black markets can arise when a binding price ceiling creates excess demand.

Question 10

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

Accepted Answer

Providing income assistance directly to households.

Question 11

Which of the following best explains why a binding price floor leads to deadweight loss?

Accepted Answer

It reduces the quantity exchanged below the equilibrium, causing a loss of economic surplus.

Question 12

In the context of market efficiency, what does the area between the demand and supply curves up to the equilibrium quantity represent?

Accepted Answer

Total economic surplus.

Question 13

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

Accepted Answer

To maximize producer surplus.

Question 14

Suppose 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 the 100th pizza?

Accepted Answer

$$15$$

Question 15

Which of the following best describes the effect of rent controls in the long run?

Accepted Answer

The shortage of rental accommodations worsens as supply decreases.

Question 16

Why might policymakers choose to implement price controls even if they lead to market inefficiency?

Accepted Answer

To help a specific group of people, accepting the overall costs.

Question 17

Which of the following is an example of a normative judgement in economics?

Accepted Answer

Arguing that rent controls are desirable because they help tenants.

Question 18

If a binding price ceiling is set at $$p_1$$ below the equilibrium price $$p_0$$, what will be the quantity actually exchanged in the market?

Accepted Answer

The quantity supplied at $$p_1.$$

Question 19

Which of the following is a direct effect of a binding minimum wage on the labor market?

Accepted Answer

Some workers lose their jobs, while others keep their jobs at a higher wage.

Question 20

What is the main role of positive analysis in economics regarding government intervention?

Accepted Answer

To emphasize the actual effects of policies, not what should be done.

Price Controls and Market Efficiency: Microeconomics Study Notes

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