PS5 solutions Q1 to Q16 PDF

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1. Rent controls set a price ceiling below the equilibrium price and therefore: a. quantity supplied exceeds the quantity demanded. b. all poor people will be helped. c. quantity demanded exceeds the quantity supplied. d. a surplus of rental units will result. 2.

Reference: Ref 5-1

(Table: The Market for Pop) Look at the table The Market for Pop. If the government imposes a price ceiling of $0.50 per can of pop, there will be: a. equilibrium in the market for pop. b. a shortage of 3 cans. c. a surplus of 3 cans. d. a shortage of 2 cans. 3. Suppose the Jamaican government sets coffee prices at $1 per kilogram, when the market price is $10. The government's actions will: a. improve efficiency, since the low prices will force producers to find cheaper production methods. b. improve equality between rich and poor, since the poor can now afford coffee. c. cause coffee shortages even in a coffee-rich country. d. result in coffee surpluses even in a coffee-rich country. 4. Hugo Chávez was the president of Venezuela. Venezuela is a major producer of oil products, which remain the keystone of Venezuela's economy. During his time as president, Chávez enacted a government policy that reduced the customer price of gasoline sold at state-owned gas stations to 50% of the previous price. This policy is called a: a. quota. b. price ceiling. c. price floor. d. price control.

5. Figure: Supply and Demand

Reference: Ref 5-8

(Figure: Supply and Demand) Look at the figure Supply and Demand. In the market shown in the figure, a binding price ceiling is represented by: a. the price P2. b. the price P3. c. point C. d. the price P1. 6. Black markets may develop with price controls because: a. price controls increase efficiency. b. individuals cannot profit by illegal exchanges. c. individuals can profit by illegal exchanges. d. quantity demanded equals quantity supplied at the mandated price.

7. Figure: Rent Controls

Reference: Ref 5-9

(Figure: Rent Controls) Look at the figure Rent Controls. If rent controls are set at Rent1: a. no one would have to pay a higher actual price than Rent0, nor would anyone be willing to do so. b.

there would be a surplus of rental units, but it is impossible to tell how large the surplus is based on the information provided.

c. some renters would be willing to pay a price as high as Rent4 for Q1 units. d. the shortage of rental units is the distance Q3 – Q1. 8. A binding price floor causes: a. a shortage in the market. b. wasted resources. c. a surplus in the market. d. a surplus in the market and wasted resources. 9. Which is not an inefficiency caused by price floors? a. wasted resources b. inefficient allocation of sales among sellers c. illegal activity d. inefficiently low quality

10. The total amount of the good that can be transacted under a quantity control is called the a. ceiling price. b. demand price. c. quota limit. d. supply price. 11. An upper limit on the quantity of a good that can be bought and sold is a: a. price ceiling. b. quota limit. c. tariff. d. price floor. 12. Figure: The Market for Round-Trip Airline Flights

Reference: Ref 5-26

(Figure: The Market for Round-Trip Airline Flights) Look at the figure The Market for Round-Trip Airline Flights. The supply and demand graph represents the market for round-trip airline flights between Montreal and Toronto. Suppose the mayor of Toronto decides to limit the number of flights to Q1 to reduce air pollution. What area or areas represent deadweight loss after the quota is in place? a. a + b + c b. c + e c. b + d + f d. a

13.

Reference: Ref 5-28

(Table: The Market for Acupuncture) Look at the table The Market for Acupuncture. In an effort to regulate this market, the town requires each acupuncture therapist to purchase a licence. Initially the government issues only enough licences to provide for 20 treatments per month. Suppose this quota is in place for many years and, over time, the population of the town has substantially grown. This change could result in: a. smaller quota rents and more deadweight loss as the demand curve shifted to the right. b. larger quota rents and more deadweight loss as the demand curve shifted to the right. c. larger quota rents and more deadweight loss as the demand curve shifted to the left. d. larger quota rents and less deadweight loss as the supply curve shifted to the right. 14. A price ceiling will create a persistent ________ and a price floor will create a persistent ________. a. surplus; surplus b. shortage; shortage c. shortage; surplus d. surplus; shortage

15. Figure: Market I

Reference: Ref 5-36

(Figure: Market I) Look at the figure Market I. If a price floor of $15 was imposed on this market and the government chose to purchase the surplus, the government would need to buy ________ units of the good and spend a total amount of ________ on its purchase. a. 9; $81 b. 10; $150 c. 5; $75 d. 9; $135

16. Figure: Market I

Reference: Ref 5-36

(Figure: Market I) Look at the figure Market I. A price floor at $15 would result in deadweight loss of a. $40.50 b. $9 c. $20 d. $10...