Parkin&Bade, Microeconomics, 2nd edition

Chapter 7: Government Actions in Markets

Multiple choice: Choose the one alternative that best completes the statement or answers the question.

1) A price ceiling

A) is the maximum price that can legally be charged.

B) is an illegal price.

C) is the price that exists in a black market.

D) Both answers A and B are correct.

E) Both answers B and C are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

2) If a price ceiling is set above the equilibrium price, then

A) there will be neither a shortage nor a surplus of the good.

B) the price ceiling affects suppliers but not demanders.

C) the price ceiling will generate revenue for the government.

D) there will be a shortage of the good.

E) there will be a surplus of the good.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

3) When a price ceiling below the equilibrium price is imposed on a good, production of the good

A) is frozen at the pre-ceiling level.

B) does not change.

C) increases.

D) decreases.

E) either increases or decreases depending on whether the supply of the good increases or decreases when the price ceiling is imposed.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

4) The demand and supply schedules for pizza are in the table above. A price ceiling of $2 per slice results in

A) a shortage of 60 slices of pizza.

B) a surplus of 20 slices of pizza.

C) a shortage of 20 slices of pizza.

D) a shortage of 40 slices of pizza.

E) neither a shortage nor a surplus.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

5) The demand and supply schedules for pizza are in the table above. If the government sets a maximum legal price of $2 per slice of pizza, then

A) there is a shortage of 20 slices of pizza.

B) this maximum price is an example of a price floor.

C) this maximum price is an example of a price ceiling.

D) Both answers A and C are correct.

E) Both answers B and C are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

6) The figure above illustrates the bagel market. Which of the following statements is correct?

A) With no government intervention, the equilibrium price of a bagel is $2.

B) With a price ceiling of $3.00 per bagel, the price of a bagel is $2.

C) With a price ceiling of $1.00 per bagel, the price of a bagel is $1.

D) Only answers A and B are correct.

E) Answers A, B and C are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

7) A rent ceiling set below the equilibrium rent

A) ensures the availability of enough low-rent housing in a city.

B) ensures that landlords earn a reasonable rate of profit on housing.

C) creates a situation in which the quantity demanded of housing is greater than quantity supplied.

D) eliminates discrimination by landlords.

E) results in all renters and potential renters being better off.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

8) A housing shortage results when

A) rents rise.

B) a tax is imposed on housing.

C) a rent floor below the equilibrium rent is imposed.

D) a rent ceiling above the equilibrium rent is imposed.

E) a rent ceiling below the equilibrium rent is imposed.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

9) Suppose the equilibrium rent in Mildura is $1,500. A rent ceiling of $1,600 per month leads to

A) a surplus of flats in Mildura.

B) no change in the Mildura flat market.

C) a shortage of flats in Mildura.

D) compared to the situation at the equilibrium rent, a decrease in the quantity of flats demanded and an increase in the quantity of flats supplied.

E) fair prices in the Mildura flat market.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

10) With a rent ceiling set below the equilibrium rent,

i. all renters are able to rent flats at a lower rent.

ii. there is a shortage of flats.

iii. the quantity of flats supplied does not change because buildings cannot be moved.

A) i only

B) ii only

C) iii only

D) ii and iii

E) i, ii and iii

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

11) An illegal market in which the price exceeds a legally imposed price ceiling is called a

A) subsidised market.

B) surplus market.

C) fair market.

D) shortage market.

E) black market.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

12) A price ceiling

A) can create a black market for the good.

B) creates market efficiency by making a good cheaper.

C) benefits all people who want to buy the good.

D) reduces search activity.

E) helps all producers by increasing the price of the good.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

13) A black market for housing exists because of a rent ceiling. The rent for housing in the black market is

A) not defined because the market is not legal.

B) lower than the ceiling rent.

C) somewhere between the ceiling rent and the maximum rent a tenant is willing to pay.

D) the same as the equilibrium rent.

E) somewhere between zero and the equilibrium rent.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

14) One of the consequences of a rent ceiling set below the equilibrium rent is

A) decreased search activity.

B) the establishment of landlord unions.

C) increased search activity.

D) surpluses of apartments.

E) the elimination of the deadweight loss that would otherwise exist in the housing market.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

15) The opportunity cost of an apartment in a rent-controlled market is equal to

A) the opportunity cost of searching for the apartment.

B) the rent charged for the apartment.

C) the rent charged for the apartment minus the opportunity cost of searching for the apartment.

D) the rent charged for the apartment plus the opportunity cost of searching for the apartment.

E) nothing, because of the surplus of apartments when there are rent controls.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

16) In a housing market with a rent ceiling below the equilibrium rent, apartment seekers spend more time searching for an apartment than they would in a housing market without a rent ceiling. Why does this difference exist?

A) The premise of the question is incorrect because people spend less time searching with a rent ceiling since they no longer need to look for a low-priced apartment.

B) The premise of the question is incorrect because there is no difference in the search time between a market with a rent ceiling and one without a ceiling.

C) In the market with the rent ceiling, the quantity of housing demanded is greater than quantity supplied at the ceiling price.

D) In the market with the rent ceiling, there is a wide variety in the quality of apartments for rent.

E) In the market with the rent ceiling, renters are searching for the best buy in apartments.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

17) In a market with a rent ceiling set below the equilibrium rent, the producer and consumer surplus

A) do not change.

B) both increase.

C) are both totally converted into deadweight loss.

D) are eliminated.

E) both decrease, but generally not to zero.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

18) When a rent ceiling below the equilibrium rent is put in place, the outcome is

A) inefficient because marginal benefit equals marginal cost.

B) inefficient because marginal benefit is greater than marginal cost.

C) inefficient because marginal benefit is less than marginal cost.

D) efficient because marginal benefit is greater than marginal cost.

E) efficient because marginal benefit equals marginal cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

19) The deadweight loss in a housing market with a rent ceiling set below the equilibrium rent is the

A) loss to those who cannot find apartments and the gain to landlords who charge black market rents.

B) loss to tenants and the gain to landlords who have the incentive to offer more apartments for rent.

C) gain to landlords and to tenants because now a fairer rent is charged.

D) loss to landlords and the gain to tenants who pay a fairer rent.

E) loss to those who cannot find apartments and the loss to landlords who cannot offer housing at the lower rent ceiling.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

20) The deadweight loss from a rent ceiling below the equilibrium rent is smallest when the supply of housing is

A) unit elastic.

B) perfectly elastic.

C) elastic but not perfectly elastic.

D) perfectly inelastic.

E) inelastic but not perfectly inelastic.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

21) The above figure shows the market for 2-bedroom townhouses in Canberra. If a rent ceiling is set at $1,000 per month then there is a

A) surplus equal to 150,000 townhouses.

B) shortage equal to 150,000 townhouses.

C) shortage equal to 250,000 townhouses.

D) surplus equal to 100,000 townhouses.

E) shortage equal to 100,000 townhouses.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

22) The above figure shows the market for 2-bedroom townhouses in Canberra. If a rent ceiling is set at $1,000 per month, what is true?

A) The quantity demanded of townhouses is less than the quantity supplied.

B) The quantity of townhouses supplied increases to 250,000.

C) Black market rents might be as high as $1,300 per month.

D) More townhouses are rented after the rent ceiling than before.

E) The quantity of townhouses demanded decreases to 100,000.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

23) The above figure shows the market for 2-bedroom townhouses in Canberra. If a rent ceiling is set at $1,000 per month, what is the maximum rent someone is willing to pay in the black market?

A) $1,000 per month

B) $1,100 per month

C) $900 per month

D) $1,300 per month

E) $1,400 per month

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

24) The above figure shows a housing market with a rent ceiling equal to $1,000. In this figure, after taking account of the resources lost in search, what area is equal to the consumer surplus?

A) Area A

B) Area B

C) Area C

D) Area D

E) Area E

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

25) The above figure shows a housing market with a rent ceiling equal to $1,000. In this figure, what area is equal to the producer surplus?

A) Area A

B) Area B

C) Area C

D) Area D

E) Area E

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

26) The above figure shows a housing market with a rent ceiling equal to $1,000. In this figure, what area is equal to the deadweight loss?

A) Area A

B) Area B

C) Area C

D) Area D

E) Area E

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

27) The above figure shows a housing market with a rent ceiling equal to $1,000. In this figure, what area is equal to the resources lost due to search?

A) Area A

B) Area B

C) Area C

D) Area D

E) Area E

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

28) The above figure shows the market for DVDs. The government decides that all citizens deserve to watch affordable DVDs so a price ceiling of $12 per DVD is placed on DVDs. After this price ceiling is in effect, and taking account of the resources lost in search, consumer surplus equals ________.

A) $200,000

B) $400,000

C) $100,000

D) $900,000

E) $180,000

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

29) The above figure shows the market for DVDs. The government decides that all citizens deserve to watch affordable DVDs so a price ceiling of $12 per DVD is placed on DVDs. After this price ceiling is in effect, producer surplus equals ________.

A) $900,000

B) $100,000

C) $400,000

D) $200,000

E) $1,800,000

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

30) The above figure shows the market for DVDs. The government decides that all citizens deserve to watch affordable DVDs so a price ceiling of $12 per DVD is placed on DVDs. After this price ceiling is in effect, deadweight loss equals ________.

A) $1,800,000

B) $400,000

C) $200,000

D) $1,600,000

E) $800,000

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

31) Which of the following is an example of the unfairness of rent control?

A) Racial discrimination in renting is discouraged by rent control.

B) Rich people do not get apartments in these markets.

C) Newcomers have a more difficult time finding apartments.

D) Too many people rent apartments.

E) Voluntary exchange is encouraged by rent control.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

32) Rent controls

A) create a deadweight loss.

B) increase maintenance by landlords.

C) benefit people who live in rent-controlled apartments.

D) Both answers A and C are correct.

E) Both answers B and C are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

33) The graph shows the market for ski chalets at Falls Creek. The Falls Creek Tourist Board asks the local government to impose a rent ceiling on ski chalets. If the rent ceiling is set at $1,900 a week, then there is

A) a shortage of 3,000 chalets a week.

B) a surplus of 3,000 chalets a week.

C) a shortage of 6,000 chalets a week.

D) a surplus of 6,000 chalets a week.

E) neither a shortage nor surplus of chalets.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

34) A rent ceiling on housing creates a problem of allocating the available housing units because

A) it eliminates search, which is one of the major ways housing units are allocated.

B) the supply of housing increases and the supply curve shifts rightward.

C) a surplus of apartments occurs.

D) the demand for housing decreases and the demand curve shifts leftward.

E) a shortage of apartments occurs.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

35) If a rent ceiling is imposed that is less than the equilibrium rent, which of the following outcomes is most likely to occur?

A) A housing surplus

B) Reduced search activity

C) Black market activity

D) A building boom

E) None of the above answers is correct because, to have an impact, the rent ceiling must be above the equilibrium rent.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

36) The graph shows the market for ski chalets at Falls Creek. If a rent ceiling is set at $1,900 a week, then the maximum amount charged in the black market is ________ a week.

A) $150

B) $2,050

C) $1,900

D) $2,125

E) $225

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

37) A rent ceiling creates a deadweight loss

A) if it is set below the equilibrium rent.

B) if it decreases the taxes the government collects in the housing market.

C) if it is set equal to the equilibrium rent.

D) if it set above the equilibrium rent.

E) never, because if it did create a deadweight loss, the government would not impose it.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

38) Rent ceilings

A) allocate resources efficiently.

B) benefit all landlords because the landlords know what rent to charge their renters.

C) benefit renters living in rent-controlled apartments.

D) eliminate the problem of scarcity.

E) ensure that housing goes to poorer people.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.1 Price Ceilings

39) A price floor is

A) a legal price of zero that can be charged for a good or service.

B) usually equal to the equilibrium price established before the government imposed the price floor.

C) the highest possible legal price that can be charged for a good or service.

D) almost always equal to the price ceiling.

E) the lowest legal price at which a good or service can be traded.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

40) Which of the following is an example of a price floor?

A) A minimum wage law.

B) An equilibrium price.

C) A law setting the highest price that can legally be charged for a litre of petrol.

D) A law passed in a city to lower apartment rents by setting the maximum price that can be charged for rent.

E) None of the above answers gives an example of a price floor.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

40) A price floor set above the equilibrium price

A) balances supply and demand.

B) creates a surplus.

C) creates a shortage.

D) has no effect.

E) creates excess demand.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

41) Suppose the equilibrium price of a litre of milk is $4. If the government imposes a price floor of $5 per litre of milk, the

A) quantity supplied of milk exceeds the quantity demanded.

B) price of milk remains $4 per litre.

C) supply increases.

D) demand decreases.

E) quantity supplied of milk falls short of the quantity demanded.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

42) In the labour market, as wages rise, households

A) increase the quantity of labour demanded.

B) decrease the quantity of labour supplied.

C) decrease the quantity of labour demanded.

D) increase the quantity of labour supplied.

E) increase the supply of labour.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

43) In a competitive labour market, a minimum wage law set above the equilibrium wage rate

A) creates a surplus of labour.

B) causes equality between the quantity of labour supplied and the quantity demanded.

C) creates a shortage of labour.

D) lowers the wage rate paid to workers.

E) has no impact.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

44) Why do some workers lose their jobs when the minimum wage is increased?

A) The supply of labour decreases.

B) The demand for labour is perfectly elastic.

C) The increase in labour costs decreases the supply of the product, thereby raising the price of the good so that the equilibrium quantity decreases to zero.

D) The demand for labour is perfectly inelastic.

E) The increase in the minimum wage decreases the quantity of labour demanded.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

45) Suppose the current equilibrium wage rate for housekeepers is $8.60 per hour. An increase in the minimum wage to $7.50 per hour leads to

A) a shortage of housekeepers.

B) a surplus of housekeepers.

C) no change in the market for housekeepers.

D) an increase in the quantity of housekeepers supplied.

E) unemployment of housekeepers.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

46) Suppose the current equilibrium wage rate for landscapers is $6.65 in Little Rock; $7.50 in St. Louis and $9.05 in Raleigh. An increase in the minimum wage to $7.50 per hour results in unemployment of landscapers in

A) Little Rock and St. Louis.

B) St. Louis and Raleigh.

C) only Little Rock.

D) only Raleigh.

E) Little Rock, St. Louis and Raleigh.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

47) The labour demand and labour supply schedules are given in the table above. If a minimum wage of $11 per hour is imposed,

A) a surplus of 300 workers occurs.

B) 900 workers are employed.

C) there is no shortage or surplus of workers.

D) Both answers B and C are correct.

E) Both answers A and C are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

48) The labour demand and labour supply schedules are given in the table above. If a minimum wage of $9 per hour is imposed,

A) there is no surplus or shortage of workers.

B) there is unemployment of 700 workers.

C) the quantity demanded is 1,000 workers.

D) a shortage of 300 workers occurs.

E) a surplus of 300 workers occurs.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

49) The figure above shows the labour market in a region. For a minimum wage to change the wage rate and amount of employment, it must be

A) set at $12 per hour.

B) set above $6 an hour.

C) left to the forces of supply and demand.

D) set equal to $6 an hour.

E) set below $6 an hour.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

50) The figure above shows the labour market in a region. If a minimum wage of $8 an hour is imposed, then there are ________ unemployed workers.

A) 20,000

B) 80,000

C) zero

D) 40,000

E) 60,000

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

51) One result of the minimum wage is

A) an increase in employment among poor and unskilled workers.

B) a black market for labour that pays more than the minimum wage.

C) a black market for labour that pays less than the minimum wage.

D) a decrease in unemployment among poor and unskilled workers.

E) decreased job-search activity.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

52) An increase in the minimum wage to $15 per hour would lead to

A) a decrease in search activity for many workers.

B) no change in unemployment.

C) no change in employment.

D) a decrease in unemployment.

E) an increase in search activity for many workers.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

53) Suppose the marginal benefit the owner of a cherry orchard derives from hiring Lauren to pick cherries is $8 per hour. If the wage rate that Lauren earns is $7 per hour, then the orchard owner's surplus from Lauren's labour is ________ per hour.

A) $15

B) $0

C) $1

D) $7

E) $8

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

54) If the minimum wage is set above the equilibrium wage, after taking into account the resources lost in job search, the firms' surplus ________ and the workers' surplus ________.

A) decreases; decreases

B) increases; decreases.

C) increases; increases

D) does not change; decreases

E) decreases; increases

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

55) A minimum wage that is above the equilibrium wage rate

A) increases efficiency within the labour market.

B) creates a deadweight loss.

C) increases the quantity of labour demanded.

D) has no effect on the labour market because it is set above the equilibrium wage rate.

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

56) Who loses and who gains from the minimum wage?

A) Losers are all workers and gainers are all firms.

B) Losers are all firms and gainers are all workers.

C) Gainers are some firms and all workers, while losers are some firms.

D) Gainers are some firms and some workers, while losers are other firms and other workers.

E) Losers are all firms and some workers, while gainers are other workers.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

57) The people who immediately benefit from a minimum wage are

A) the workers who retain their jobs after enactment of the minimum wage.

B) everyone, both demanders and suppliers, because the minimum wage benefits everyone.

C) all workers.

D) employers who now pay the minimum wage.

E) those people who enter the labour force to search for minimum wage jobs.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

58) In the figure above, if the minimum wage rate is $8 per hour, then, after taking account of resources lost in job search, the workers' surplus is the area ________ and the firms' surplus is the area ________.

A) e; c

B) a; f

C) f; a

D) d; b

E) a + b + c + d + e; f

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

59) In the figure above, if the minimum wage is $8 per hour, then

A) resources used in job-search activity increase compared to the situation before the minimum wage.

B) the deadweight loss is minimised.

C) it is legal to hire workers for a wage below the minimum wage because otherwise unemployment would result.

D) Both answers A and B are correct.

E) Both answers B and C are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

60) The above figure shows a labour market with a minimum wage of $8 an hour. How many people are employed when the minimum wage is in place?

A) 40,000

B) 80,000

C) 60,000

D) Fewer than 40,000

E) More than 80,000

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

61) The above figure shows a labour market with a minimum wage of $8 an hour. The deadweight loss equals the

A) distance ab.

B) area abc.

C) distance ad.

D) area acd.

E) area bad.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

62) The above figure shows the market for carpenters in Geelong. If there is a minimum wage set at $18, which of the following statements is true?

A) Workers who retain their jobs have their wages rise.

B) Firms' surplus increases with the minimum wage.

C) The quantity supplied of workers is less that quantity demanded.

D) The market is efficient.

E) Unemployment decreases because firms employ their workers more carefully.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

63) The above figure shows the market for carpenters in Geelong. There is a minimum wage set at $18. Compared to the initial equilibrium without the minimum wage, once the minimum wage is in place, and after taking account of job search, the total workers' surplus ________ and the total firms' surplus ________.

A) increases; increases

B) decreases; increases

C) decreases; decreases

D) does not change; increases

E) increases; decreases

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

64) The above figure shows a labour market with a minimum wage equal to $16. In this figure, what area equals the firms' surplus?

A) Area A

B) Area B

C) Area C

D) Area D

E) Area E

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

65) The above figure shows a labour market with a minimum wage equal to $16. In this figure, after taking account of search costs, what area equals the workers' surplus?

A) Area A

B) Area B

C) Area C

D) Area D

E) Area E

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

66) The above figure shows a labour market with a minimum wage equal to $16. In this figure, what area equals the deadweight loss?

A) Area A

B) Area B

C) Area C

D) Area D

E) Area E

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

67) The above figure shows a labour market with a minimum wage equal to $16. In this figure, what area equals the resources lost because of job search?

A) Area A

B) Area B

C) Area C

D) Area D

E) Area E

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

68) A price floor is considered

A) 'fair' based only on the fair results view.

B) 'unfair' based only on the fair results view.

C) 'unfair' based on both the fair results and fair rules views.

D) 'fair' based only on the fair rules view.

E) 'fair' based on the fair results view and on the fair rules view.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

69) The 'fair results' view of fairness says that a minimum wage law set above the equilibrium wage rate is unfair because the minimum wage

A) does not apply to all workers.

B) boosts the income of highly skilled workers.

C) benefits nobody.

D) benefits only those workers who are able to find and keep a job.

E) cannot be enforced.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

70) Labour unions support the minimum wage because

A) it puts upward pressure on all wages.

B) labour unions prefer to operate in black markets.

C) the increased unemployment is good for labour.

D) union members are usually paid the minimum wage.

E) the value associated with the deadweight loss goes to labour unions.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

71) A price floor is a price

A) below which a seller cannot legally sell.

B) that creates a shortage of the good if it is set above the equilibrium price.

C) above which a seller cannot legally sell.

D) Both answers A and C are correct.

E) Both answers B and C are correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

72) To be effective in raising people's wages, a minimum wage must be set

A) equal to the equilibrium wage rate.

B) below the equilibrium wage rate.

C) below $7.

D) above the equilibrium wage rate.

E) either above or below the equilibrium wage depending on whether the supply curve of labour shifts rightward or leftward in response to the minimum wage.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

73) Suppose the current equilibrium wage rate for lifeguards in Sydney is $7.85 an hour. A minimum wage law that creates a price floor of $8.50 an hour leads to

A) no changes in the lifeguard market.

B) a shortage of lifeguards in Sydney.

C) an increase in the number of lifeguards employed.

D) a change in the quantity of lifeguards supplied but no change in the quantity of lifeguards demanded.

E) a surplus of lifeguards in Sydney.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

74) The graph shows the labour market for teenagers in Brisbane. If the government sets a minimum wage of $6 an hour, the number of teenagers employed is

A) 3,000.

B) 5,000.

C) 7,000.

D) less than 3,000.

E) 4,000.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

75) The graph shows the labour market for apple pickers in Tasmania. If the government sets a minimum wage of $5 an hour, ________ apple pickers are unemployed.

A) 8,000

B) 14,000

C) 6,000

D) 10,000

E) more than 14,000

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

76) If a minimum wage is introduced that is above the equilibrium wage rate,

A) the supply of labour increases and the supply of labour curve shifts rightward.

B) job-search activity increases.

C) unemployment decreases because more workers accept jobs at the higher minimum wage rate.

D) the quantity of labour demanded increases.

E) the quantity of labour supplied decreases because of the increase in unemployment.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

77) A minimum wage set above the equilibrium wage rate creates

A) inefficiency because it creates excessive employment.

B) efficiency because few workers lose their jobs.

C) efficiency because workers can earn a living wage.

D) inefficiency and a deadweight loss.

E) efficiency because it increases most workers' wages.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

78) The graph above shows the labour market for fast-food workers in Canberra. If the government sets a minimum wage of $7 an hour, then the labour market is ________, and marginal benefit ________ marginal cost.

A) efficient; equals

B) inefficient; is greater than

C) inefficient; cannot be compared to

D) inefficient; is less than

E) inefficient; equals

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.2 Price Floors

79) The methods that governments use to support farmers vary, but they almost always involve some or all the following methods EXCEPT

A) introducing a price floor.

B) taxing farmers.

C) isolating the domestic market from global competition.

D) using price supports.

E) paying the farmer a subsidy.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.3 Price Supports in Agriculture

80) Which of the following is true regarding a price support set above the equilibrium price?

i. The price support increases the price consumers pay.

ii. The price support creates a deadweight loss.

iii. The price support decreases output.

A) i only

B) i and ii

C) iii only

D) i, ii and iii

E) i and iii

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.3 Price Supports in Agriculture

81) In a crop market with a price support above the equilibrium price, the total amount of the subsidy paid to farmers is equal to the

A) quantity of the crop produced multiplied by the support price.

B) quantity of the surplus crop multiplied by the equilibrium price.

C) quantity of the surplus crop multiplied by the support price.

D) quantity of the crop purchased by domestic users multiplied by the equilibrium price.

E) quantity of the crop purchased by domestic users multiplied by the support price.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.3 Price Supports in Agriculture

82) In the market for cotton, suppose the equilibrium price is $10 per tonne and the equilibrium quantity is 100 tonnes. If the government then imposes a price support of $20 per tonne,

A) consumer surplus increases.

B) marginal cost decreases.

C) the deadweight loss is decreased.

D) the market price decreases.

E) the market price increases.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.3 Price Supports in Agriculture

83) A price support leads to inefficiency because

A) output is more than the efficient, equilibrium quantity.

B) producer surplus is less than consumer surplus.

C) the price charged is less than the equilibrium price.

D) producers must pay a subsidy to the government.

E) the marginal benefit of the last unit produced is larger than the marginal cost.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.3 Price Supports in Agriculture

84) Agricultural price supports in Australia

A) decrease the deadweight loss and improve market efficiency.

B) benefit Australian taxpayers, Australian farmers and Australian consumers.

C) create gains to Australian farmers that are at least as large as the losses to Australian consumers.

D) harm Australian consumers, Australian taxpayers and foreign farmers and create a deadweight loss.

E) None of the above answers is correct.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.3 Price Supports in Agriculture

85) Suppose the equilibrium price of cotton is $100 per tonne. A price support set at ________ than $100 per tonne ________.

A) less; increases producer surplus

B) more; decreases marginal cost

C) more; increases consumer surplus

D) less; increases consumer surplus

E) more; creates a surplus that the government must buy

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.3 Price Supports in Agriculture

86) In the market for cotton, suppose the equilibrium price is $10 per tonne and the equilibrium quantity is 100 tonnes. If the government then imposes a price support of $20 per tonne,

A) marginal benefit exceeds marginal cost.

B) the government must supply some cotton to offset the shortage that results.

C) the market becomes more efficient.

D) marginal cost decreases.

E) marginal cost exceeds marginal benefit.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.3 Price Supports in Agriculture

87) The above figure shows the domestic market for wheat. Suppose this market is isolated from global competition. With no government intervention, the equilibrium price is ________ and the equilibrium quantity is ________.

A) $15 per tonne; 400 million tonnes

B) $15 per tonne; 100 million tonnes

C) $12 per tonne; 250 million tonnes

D) $14 per tonne; 250 million tonnes

E) $12 per tonne; 300 million tonnes

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.3 Price Supports in Agriculture

88) The above figure shows the domestic market for wheat. Suppose this market is isolated from global competition and the government intervenes by setting a support price of $15 a tonne. The quantity produced once the price support is in place is

A) 250 million tonnes.

B) 400 million tonnes.

C) 300 million tonnes.

D) 200 million tonnes.

E) 100 million tonnes.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.3 Price Supports in Agriculture

89) The above figure shows the domestic market for wheat. Suppose this market is isolated from global competition and the government intervenes by setting a support price of $15 a tonne. As a result of this price support, the total subsidy paid to wheat farmers equals

A) $3.5 billion.

B) $4.5 billion.

C) $3 billion.

D) $4 billion.

E) $1.5 billion.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.3 Price Supports in Agriculture

90) The above figure shows the domestic market for tomatoes. Suppose this market is isolated from global competition and there is a support price set at $16. In this figure, what area equals the consumer surplus?

A) Area F

B) Area A + area B + area C

C) Area A

D) Area A + area F

E) Area C + area D + area E + area G

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.3 Price Supports in Agriculture

91) The above figure shows the domestic market for tomatoes. Suppose this market is isolated from global competition and there is a support price set at $16. In this figure, what area equals the producer surplus?

A) Area B + area C + area D + area F

B) Area F

C) Area C + area D + area E + area G

D) Area A + area F

E) Area A + area B + area C

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.3 Price Supports in Agriculture

92) The above figure shows the domestic market for tomatoes. Suppose this market is isolated from global competition and there is a support price set at $16. In this figure, what area equals the deadweight loss?

A) Area B + area C + area D + area F

B) Area C + area D + area E + area G

C) Area A

D) Area F

E) Area E

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.3 Price Supports in Agriculture

93) The above figure shows the domestic market for tomatoes. Suppose this market is isolated from global competition and there is a support price set at $16. In this figure, what area equals the total subsidy paid to tomato farmers?

A) Area A

B) Area B + area C + area D + area F

C) Area E

D) Area C + area D + area E + area G

E) Area F

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.3 Price Supports in Agriculture

94) A price support directly sets the

A) highest price for which the good may be sold.

B) lowest price for which the good may be sold.

C) amount of production.

D) equilibrium quantity.

E) subsidy the government must receive from producers.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.3 Price Supports in Agriculture

95) With a price support program, who receives a subsidy?

A) The government

B) Only producers

C) Only consumers

D) Importers

E) Both consumers and producers receive a subsidy.

Difficulty: Basic

Standard/Graduate Attribute AACSB: Reflective thinking

A-Head: 7.3 Price Supports in Agriculture