Chapter 7 Government Actions in Markets – Test Bank 9e - Foundations of Microeconomics 9e | Test Bank with Answer Key by Robin Bade by Robin Bade. DOCX document preview.
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Foundations of Microeconomics, 9e (Bade)
Chapter 7 Government Actions in Markets
7.1 Price Ceilings
1) A price ceiling
A) is an illegal price.
B) is the price that exists in a black market.
C) is the maximum price that can legally be charged.
D) Both answer A and B are correct.
E) Both answers B and C are correct.
Topic: Price ceiling
Skill: Level 1: Definition
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
2) A price ceiling is
A) a maximum legal price.
B) a minimum legal price.
C) an equilibrium price.
D) a market-determined price.
E) the highest price at which the quantity demanded equals the quantity supplied.
Topic: Price ceiling
Skill: Level 1: Definition
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
3) If a price ceiling is set above the equilibrium price, then
A) there will be a surplus of the good.
B) there will be a shortage of the good.
C) there will be neither a shortage nor a surplus of the good.
D) the price ceiling will generate revenue for the government.
E) the price ceiling affects suppliers but not demanders.
Topic: Price ceiling, shortages
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
4) A price ceiling in the market for gasoline that is below the equilibrium price will lead to
A) the quantity demanded of gasoline exceeding the quantity supplied.
B) an increase in the demand for gasoline.
C) a decrease in the supply of gasoline.
D) the quantity supplied of gasoline exceeding the quantity demanded.
E) no change in the market since the price ceiling is below the equilibrium price.
Topic: Price ceiling
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
5) When a price ceiling below the equilibrium price is imposed on a good, production of the good
A) increases.
B) decreases.
C) does not change.
D) is frozen at the pre-ceiling level.
E) either increases or decreases depending on whether the supply of the good increases or decreases when the price ceiling is imposed.
Topic: Price ceiling, shortages
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
6) A price ceiling in the market for fuel oil that is below the equilibrium price will
A) lead to the quantity supplied of fuel oil exceeding the quantity demanded.
B) lead to the quantity demanded of fuel oil exceeding the quantity supplied.
C) decrease the demand for fuel oil.
D) increase the supply of fuel oil.
E) have no effect in the market for fuel oil.
Topic: Price ceiling, shortages
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
7) The demand and supply schedules for pizza are in the table above. A price ceiling of $4 per slice results in
A) a surplus of 20 slices of pizza.
B) a shortage of 20 slices of pizza.
C) a shortage of 40 slices of pizza.
D) a shortage of 60 slices of pizza.
E) neither a shortage nor a surplus.
Topic: Price ceiling, shortages
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Revised
AACSB: Analytical thinking
8) The demand and supply schedules for pizza are in the table above. A price ceiling of $8 per slice results in
A) a surplus of 20 slices of pizza.
B) a shortage of 20 slices of pizza.
C) a shortage of 40 slices of pizza.
D) a shortage of 60 slices of pizza.
E) neither a shortage nor a surplus.
Topic: Price ceiling, shortages
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Revised
AACSB: Analytical thinking
9) The demand and supply schedules for pizza are in the table above. If the government sets a maximum legal price of $4 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.
Topic: Price ceiling, shortages
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Revised
AACSB: Analytical thinking
10) The figure shows the market for apartments in Rivercity. If the government imposes a rent ceiling of $1,900 which of the following will occur?
i. There will be increased search activity.
ii. A shortage of apartments will occur.
iii. A deadweight loss will occur.
A) i, ii and iii
B) i only
C) ii and iii only
D) i and ii only
E) ii only
Topic: Price ceiling
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Revised
AACSB: Analytical thinking
11) The graph shows the market for apartments in Rivercity. Prior to the rent ceiling, ________ apartments are rented at ________. After a rent ceiling of $1,900 is imposed, ________ are rented.
A) 3,000; $1,900; 3,000.
B) 4,000; $2,050; 3,000.
C) 4,000; $2,050; 4,000.
D) 3,000; $1,900; 4,000.
E) 3,000; $2,050; 3,000,
Topic: Price ceiling
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Revised
AACSB: Analytical thinking
12) The graph shows the market for apartments in Rivercity. As a result of the rent ceiling of $1,900, ________ are rented and people are willing to incur search costs of ________.
A) 3,000; more than $200
B) 3,000; less than $200
C) 4,000; zero
D) 4,000; more than $200
E) None of the above answers are correct.
Topic: Rent ceiling
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Revised
AACSB: Analytical thinking
13) The figure above illustrates the bagel market. Which of the following statements is correct?
A) With a price ceiling of $1.00 per bagel, the quantity demanded is equal to the quantity supplied.
B) With a price ceiling of $3.00 per bagel, the quantity demanded is greater than the quantity supplied.
C) With a price ceiling of $1.00 per bagel, there is a shortage of bagels.
D) Answers A and B are correct.
E) Answers B and C are correct.
Topic: Price ceiling, shortages
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
14) The figure above illustrates the bagel market. Which of the following statements is correct?
A) With a price ceiling of $1.00 per bagel, the price of a bagel is $1.
B) With a price ceiling of $3.00 per bagel, the price of a bagel is $2.
C) With no government intervention, the equilibrium price of a bagel is $2.
D) Only answers A and B are correct.
E) Answers A, B, and C are correct.
Topic: Price ceiling
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
15) In a housing market with no rent ceilings, the equilibrium rent is that for which the quantity of apartments demanded
A) equals the quantity supplied.
B) is greater than the quantity supplied.
C) is less than the quantity supplied.
D) might be greater than, equal to, or less than the quantity supplied depending on whether the supply curve is upward sloping, horizontal, or vertical.
E) None of the above answers is correct because without rent ceilings there is no equilibrium rent.
Topic: Rent ceiling
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
16) A rent ceiling set below the equilibrium rent
A) ensures the availability of enough low-rent apartments in a city.
B) results in all renters and potential renters being better off.
C) creates a situation in which the quantity demanded of housing is greater than quantity supplied.
D) ensures that landlords earn a reasonable rate of profit on apartments.
E) eliminates discrimination by landlords.
Topic: Rent ceiling, shortages
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
17) A rent ceiling set below the equilibrium rent decreases the quantity of housing supplied because
A) landlords of previously barely profitable apartments refuse to rent them.
B) the supply of housing increases.
C) fewer tenants will search for housing.
D) demand for housing will increase.
E) the supply curve of housing immediately shifts leftward.
Topic: Rent ceiling, shortages
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
18) A housing shortage results when
A) a tax is imposed on housing.
B) a rent ceiling below the equilibrium rent is imposed.
C) a rent ceiling above the equilibrium rent is imposed.
D) rents rise.
E) a rent floor below the equilibrium rent is imposed.
Topic: Rent ceiling, shortages
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
19) Suppose the equilibrium rent in Denver is $1,050. A rent ceiling of $755 per month leads to
A) a surplus of apartments in Denver.
B) a shortage of apartments in Denver.
C) no change in the Denver apartment market.
D) fair prices in the Denver market.
E) compared to the situation at the equilibrium rent, a decrease in the quantity of apartments demanded and an increase in the quantity of apartments supplied.
Topic: Rent ceiling, shortages
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
20) Suppose the equilibrium rent in Boston is $1,500. A rent ceiling of $1,600 per month leads to
A) a surplus of apartments in Boston.
B) a shortage of apartments in Boston.
C) no change in the Boston apartment market.
D) fair prices in the Boston apartment market.
E) compared to the situation at the equilibrium rent, a decrease in the quantity of apartments demanded and an increase in the quantity of apartments supplied.
Topic: Rent ceiling, shortages
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
21) With a rent ceiling set below the equilibrium rent
i. all renters are able to rent apartments at a lower rent.
ii. there is a shortage of apartments.
iii. the quantity of apartments 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
Topic: Rent ceiling, shortages
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
22) Which of the following is an impact of a rent ceiling set below the equilibrium rent?
A) Renters find apartments to rent more rapidly because the rent ceiling is lower.
B) Landlords' incentives to provide apartments decrease.
C) The supply of apartments increases as soon as the rent ceiling is imposed.
D) A surplus of housing occurs.
E) Search for apartments decreases because renters need no longer search for the apartment with the lowest rent.
Topic: Rent ceiling, shortages
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
23) If a rent ceiling is below the equilibrium rent, some allocation scheme must be used. The allocation methods include all of the following EXCEPT
A) charging the equilibrium rent.
B) refusing to rent to individuals on the basis of sex, race, or some other attribute.
C) requiring a payment, such as key money, in addition to the rent.
D) the creation of a black market.
E) increased search activity.
Topic: Rent ceiling, allocation
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
24) Which of the following results from a price ceiling?
i. increased search activity
ii. surplus
iii. black market
A) i only
B) i and iii
C) ii and iii
D) i, ii, and iii
E) ii only
Topic: Price ceiling, search and black market
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
25) An illegal market in which the price exceeds a legally imposed price ceiling is called a
A) shortage market.
B) surplus market.
C) black market.
D) fair market.
E) subsidized market.
Topic: Price ceiling, black market
Skill: Level 1: Definition
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
26) A black market
A) is legal only when it is associated with government price ceilings.
B) is defined as the deadweight loss associated with taxes.
C) benefits no one.
D) is a potential outcome of a price ceiling.
E) is always legal.
Topic: Price ceiling, black market
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
27) A price ceiling
A) creates market efficiency by making a good cheaper.
B) helps all producers by increasing the price of the good.
C) can create a black market for the good.
D) reduces search activity.
E) benefits all people who want to buy the good.
Topic: Price ceiling, black market
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
28) A rent ceiling below the equilibrium rent
A) increases the quantity of housing supplied.
B) is an example of a price floor.
C) has no effect on the housing market because the ceiling is below the equilibrium.
D) can create a black market.
E) limits search because people need no longer search for cheap apartments.
Topic: Rent ceiling, black market
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
29) A black market for housing exists because of a rent ceiling. The rent for housing in the black market is
A) the same as the equilibrium rent.
B) lower than the ceiling rent.
C) somewhere between the ceiling rent and the maximum rent a tenant is willing to pay.
D) somewhere between zero and the equilibrium rent.
E) not defined because the market is not legal.
Topic: Rent ceiling, black market
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
30) Black markets can occur when price ceilings are imposed in a market. Which of the following explains why sellers participate in a black market?
A) Sellers are able to sell the product for a higher than legal price.
B) There are more buyers in the black market than in the legal market.
C) The demand is perfectly elastic in a black market.
D) The demand is perfectly inelastic in a black market.
E) The surplus in the legal market means that many sellers can sell their product in the black market.
Topic: Rent ceiling, black market
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
31) When a rent ceiling law is passed in a city, which of the following occurs?
A) The total price of renting an apartment decreases to all renters.
B) The quantity of apartments supplied does not change.
C) Some landlords and renters use methods such as "key money" to get around the rent ceiling law.
D) Renters have no trouble finding a nice, reasonably priced apartment to rent.
E) Generally the number of renters in the city increases because people move to the city to take advantage of the low-rent apartments.
Topic: Rent ceiling, black market
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
32) One of the consequences of a rent ceiling set below the equilibrium rent is
A) decreased search activity.
B) increased search activity.
C) the establishment of landlord unions.
D) surpluses of apartments.
E) the elimination of the deadweight loss that would otherwise exist in the housing market.
Topic: Rent ceiling, search
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
33) The opportunity cost of an apartment in a rent controlled market is equal to
A) the rent charged for the apartment.
B) the opportunity cost of searching for the apartment.
C) the rent charged for the apartment plus the opportunity cost of searching for the apartment.
D) nothing because of the surplus of apartments when there are rent controls.
E) the rent charged for the apartment minus the opportunity cost of searching for the apartment.
Topic: Rent ceiling, search
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
34) A rent ceiling in a housing market
A) makes all rents lower than the ceiling illegal to charge.
B) is set above the equilibrium rent in order to have an effect.
C) increases the time people spend searching for housing.
D) Both answers B and C are correct.
E) Both answers A and C are correct.
Topic: Rent ceiling, search
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
35) 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) In the market with the rent ceiling, renters are searching for the best buy in apartments.
B) In the market with the rent ceiling, there is a wide variety in the quality of apartments for rent.
C) In the market with the rent ceiling, the quantity of housing demanded is greater than quantity supplied at the ceiling price.
D) 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.
E) 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.
Topic: Rent ceiling, search
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
36) In a market with a rent ceiling set below the equilibrium rent, the producer and consumer surplus
A) both increase.
B) both decrease, but generally not to zero.
C) do not change.
D) are eliminated.
E) are both totally converted into deadweight loss.
Topic: Rent ceiling, efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
37) Which of the following decrease the deadweight loss from a rent ceiling set below the equilibrium rent?
i. lowering the ceiling
ii. dedicating more resources to enforcement of the ceiling
iii. raising the ceiling
A) i only
B) ii only
C) iii only
D) i and ii
E) ii and iii
Topic: Rent ceiling, efficiency
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
38) People who benefit from a rent ceiling include
A) all landlords.
B) taxpayers.
C) tenants who have a rent-controlled apartment.
D) potential tenants, that is, people looking for apartments.
E) all landlords and some tenants.
Topic: Rent ceiling, efficiency
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
39) When a rent ceiling below the equilibrium rent is put in place, the outcome is
A) efficient because marginal benefit equals marginal cost.
B) inefficient because marginal benefit equals marginal cost.
C) inefficient because marginal benefit is greater than marginal cost.
D) inefficient because marginal benefit is less than marginal cost.
E) efficient because marginal benefit is greater than marginal cost.
Topic: Rent ceiling, efficiency
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
40) Assuming that the rent ceiling is strictly enforced so that there is no black market, which of the following statements about a housing market with a rent ceiling set below the equilibrium rent is correct?
A) The rent for housing equals the ceiling rent or higher.
B) There is excess supply of housing.
C) The rent ceiling increases the amount of producers' surplus.
D) The rent ceiling creates a deadweight loss.
E) The rent ceiling enforces efficiency upon the housing market.
Topic: Rent ceiling, deadweight loss
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
41) 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 those who cannot find apartments and the loss to landlords who cannot offer housing at the lower rent ceiling.
C) loss to landlords and the gain to tenants who pay a fairer rent.
D) loss to tenants and the gain to landlords who have the incentive to offer more apartments for rent.
E) gain to landlords and to tenants because now a fairer rent is charged.
Topic: Rent ceiling, deadweight loss
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
42) Rent ceilings set below the equilibrium rent
i. create a deadweight loss.
ii. increase search activity.
iii. result in a surplus of apartments.
A) i only
B) ii only
C) i and iii
D) i and ii
E) i, ii, and iii
Topic: Rent ceiling, deadweight loss
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
43) The deadweight loss from a rent ceiling below the equilibrium rent is smallest when the supply of housing is
A) perfectly elastic.
B) elastic but not perfectly elastic.
C) unit elastic.
D) inelastic but not perfectly inelastic.
E) perfectly inelastic.
Topic: Rent ceiling, deadweight loss
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
44) The above figure shows the market for 1 bedroom town homes in San Diego. If a rent ceiling is set at $1,000 per month then there is a
A) surplus equal to 150,000 town homes.
B) shortage equal to 100,000 town homes.
C) surplus equal to 100,000 town homes.
D) shortage equal to 150,000 town homes.
E) shortage equal to 250,000 town homes.
Topic: Rent ceiling, shortages
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
45) The above figure shows the market for 1 bedroom town homes in San Diego. If a rent ceiling is set at $1,000 per month, what is TRUE?
A) The quantity of town homes demanded decreases to 100,000.
B) Black market rents might be as high as $1,300 per month.
C) The quantity of town homes supplied increases to 250,000.
D) More town homes are rented after the rent ceiling that before.
E) The quantity demanded of town homes is less than the quantity supplied.
Topic: Rent ceiling, black market
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
46) The above figure shows the market for 1 bedroom town homes in San Diego. 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) $1,300 per month
B) $1,000 per month
C) $900 per month
D) $1,100 per month
E) $1,400 per month
Topic: Rent ceiling, black market
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
47) The above figure shows the market for winter jackets. In an effort to keep the nation warm, the president places a price ceiling of $100 in the market for winter jackets. As a result, there is a
A) shortage equal to 150,000 jackets.
B) surplus equal to 150,000 jackets.
C) surplus equal to 300,000 jackets.
D) shortage equal to 250,000 jackets.
E) shortage equal to 100,000 jackets.
Topic: Price ceiling, shortages
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
48) The above figure shows the market for winter jackets. In an effort to keep the nation warm, the president places a price ceiling of $100 in the market for winter jackets. Which of the following statements is TRUE?
A) After taking account of the resources lost in search, consumer surplus increases when the price ceiling is in place.
B) There will be a surplus of jackets.
C) Because the price of a jacket is lowered, consumers end up buying more jackets with the price ceiling than without it.
D) Producer surplus decreases if there is a price ceiling.
E) The quantity supplied of jackets is greater that quantity demanded when there is a price ceiling.
Topic: Price ceiling, efficiency
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
49) The above figure shows the market for winter jackets. In an effort to keep the nation warm, the president places a price ceiling of $100 in the market for winter jackets. What would be the maximum price someone would pay in the black market?
A) $100 per jacket
B) $120 per jacket
C) $130 per jacket
D) $90 per jacket
E) $140 per jacket
Topic: Price ceiling, black market
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
50) The above figure shows the market for winter jackets. In an effort to keep the nation warm, the president places a price ceiling of $100 in the market for winter jackets. When the price ceiling is in place and taking account of the resources lost in search, consumer surplus ________ and producer surplus ________ compared to the equilibrium before the price ceiling was imposed.
A) decreases; increases
B) decreases; decreases
C) increases; increases
D) increases; decreases
E) does not change; increases
Topic: Price ceiling, efficiency
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
51) 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
Topic: Rent ceiling, efficiency
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
52) 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
Topic: Rent ceiling, efficiency
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
53) 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
Topic: Rent ceiling, deadweight loss
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
54) 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
Topic: Rent ceiling, search
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
55) 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) $900,000.
B) $400,000.
C) $200,000.
D) $180,000.
E) $100,000.
Topic: Price ceiling, efficiency
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
56) 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) $400,000.
C) $200,000.
D) $100,000.
E) $1,800,000.
Topic: Price ceiling, efficiency
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
57) 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) $1,600,000.
B) $200,000.
C) $800,000.
D) $1,800,000.
E) $400,000.
Topic: Price ceiling, efficiency
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
58) In a housing market with a rent ceiling set below the equilibrium rent, as time passes the supply of apartments
A) decreases.
B) increases.
C) does not change.
D) becomes fixed by the government.
E) increases while the demand for apartments decreases.
Topic: Rent ceiling, change in supply over time
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
59) New York City, which has had a rent ceiling law for more than seventy years, has many abandoned apartment buildings throughout the city. Which of the following explains this?
A) Few workers with jobs in the city want to live in there because of pollution.
B) No building permits for new apartment buildings have been issued for over fifty years.
C) Once any building gets so old, it is abandoned.
D) Landlords have no incentive to finance maintenance and remodeling of apartment buildings.
E) Rent ceilings make the construction of new buildings so profitable that old buildings are simply abandoned.
Topic: Rent ceiling, change in supply over time
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Revised
AACSB: Reflective thinking
60) Which of the following is an example of the unfairness of rent ceilings?
A) Voluntary exchange is encouraged by rent ceilings.
B) Racial discrimination in renting is discouraged by rent ceilings.
C) Newcomers have a more difficult time finding apartments.
D) Rich people do not get apartments in these markets.
E) Too many people rent apartments.
Topic: Rent ceiling, unfairness
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Ethical understanding and reasoning
61) Suppose the city of Chicago imposes a rent ceiling that fixes rents at $400 below the equilibrium rent. With this plan
A) the quantity of apartments demanded will increase.
B) the quantity of apartments supplied will increase.
C) young people and poor people will have an easier time finding apartments.
D) the deadweight loss in Chicago's apartment market will be eliminated.
E) there will be a surplus of apartments offered for rent.
Topic: Rent ceiling, unfairness
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
62) Rent ceilings
A) create a deadweight loss.
B) increase maintenance by landlords.
C) benefit people who live in apartments where the rent is controlled by the ceiling.
D) Both answers A and C are correct.
E) Both answers B and C are correct.
Topic: Rent ceiling, unfairness
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Revised
AACSB: Reflective thinking
63) Rent ceilings are difficult to abolish because
A) they create such large profits for landlords.
B) current renters offer political support for ceilings.
C) the government doesn't like to give up the tax revenues associated with ceilings.
D) they result in an efficient use of resources.
E) landlords lobby to keep them in place.
Topic: Rent ceiling, unfairness
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
64) A price ceiling is a government regulation that makes it illegal to charge a price
A) below the equilibrium price.
B) above the equilibrium price.
C) for a good or service.
D) above some specified level.
E) below some specified level.
Topic: Price ceiling
Skill: Level 1: Definition
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
65) When a price ceiling is set below the equilibrium price, the quantity supplied ________ the quantity demanded and ________ exists.
A) is less than; a surplus
B) is less than; a shortage
C) is greater than; a surplus
D) is greater than; a shortage
E) equals; an equilibrium
Topic: Price ceiling, shortages
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
66) The graph shows the market for holiday condos in West Palm Beach. The equilibrium rent is ________ a week.
A) any amount less than $1,550
B) any amount greater than $1,550
C) $1,550
D) $4,000
E) None of the above answers is correct.
Topic: Rent ceiling
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
67) In a housing market with a rent ceiling set below the equilibrium rent
A) some people seeking an apartment to rent will not be able to find one.
B) the total cost of renting an apartment will decrease for all those seeking housing.
C) some landlords will not be able to find renters to fill available apartments.
D) search will decrease because renters no longer need to search for less expensive apartments.
E) None of the above answers are correct because to have an impact, the rent ceiling must be set above the equilibrium rent.
Topic: Rent ceiling, shortages
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
68) The graph shows the market for ski chalets in Aspen. The Aspen 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) neither a shortage nor surplus of chalets.
D) a shortage of 6,000 chalets a week.
E) a surplus of 6,000 chalets a week.
Topic: Rent ceiling, shortages
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
69) A rent ceiling on housing creates a problem of allocating the available housing units because
A) the demand for housing decreases and the demand curve shifts leftward.
B) the supply of housing increases and the supply curve shifts rightward.
C) a shortage of apartments occurs.
D) a surplus of apartments occurs.
E) it eliminates search, which is one of the major ways housing units are allocated.
Topic: Rent ceiling, allocation
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
70) Suppose that the government imposes a price ceiling on gasoline that is below the equilibrium price. The black market for gasoline is ________ market in which the price ________ ceiling price.
A) a legal; exceeds the
B) an illegal; exceeds the
C) a legal; is less than the
D) an illegal; is less than the
E) an illegal; equals
Topic: Price ceiling, black market
Skill: Level 1: Definition
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
71) If a rent ceiling is imposed that is less than the equilibrium rent, which of the following outcomes is most likely to occur?
A) reduced search activity
B) black market activity
C) a building boom
D) a housing surplus
E) None of the above answers is correct because to have an impact, the rent ceiling must be above the equilibrium rent.
Topic: Rent ceiling, black market
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
72) The graph shows the market for ski chalets in Aspen. If a rent ceiling is set at $1,900 a week, then the maximum amount charged in the black market is ________ a week.
A) $1,900
B) $2,050
C) $2,125
D) $225
E) $150
Topic: Rent ceiling, black market
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
73) The graph shows the market for holiday condos in West Palm Beach. If a rent ceiling is set at $1,700 a week, the quantity of holiday condos rented
A) is 2,000 a week.
B) is 4,000 a week.
C) is 5,000 a week.
D) is some amount, but more information is needed to determine the amount.
E) depends on the black market.
Topic: Rent ceiling, shortages
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
74) Rent ceilings
A) increase search activity.
B) result in surpluses.
C) create efficiency.
D) benefit producers.
E) have no effect if they are set below the equilibrium rent.
Topic: Rent ceiling, search
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
75) A rent ceiling creates a deadweight loss
A) if it is set below the equilibrium rent.
B) if it is set equal to the equilibrium rent.
C) if it set above the equilibrium rent.
D) if it decreases the taxes the government collects in the housing market.
E) never, because if it did create a deadweight loss, the government would not impose it.
Topic: Price ceiling, efficiency
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
76) If a price ceiling is introduced in the market for milk below the market equilibrium price, then the producer surplus made by dairy farmers
A) will increase.
B) will decrease.
C) will not change.
D) might increase or decrease depending on whether the demand for milk increases or decreases.
E) might increase or decrease depending on whether the supply of milk decreases or increases.
Topic: Price ceiling, efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
77) The graph shows the market for rental housing in Little Rock. The market for apartments is efficient when
A) the quantity of apartments demanded is 12,000 a month.
B) the rent ceiling is set at $300 a month.
C) there is no rent ceiling.
D) the quantity of apartments supplied is 6,000 a month.
E) the rent charged is less than $450.
Topic: Rent ceiling, efficiency
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
78) Rent ceilings
A) eliminate the problem of scarcity.
B) allocate resources efficiently.
C) ensure that housing goes to the poorer people.
D) benefit renters living in apartments with the rent ceilings.
E) benefit all landlords because the landlords know what rent to charge their renters.
Topic: Rent ceiling, unfairness
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Reflective thinking
79) A rent ceiling is
A) fair, because it helps all renters.
B) fair, because it insures that low-income families can rent apartments.
C) fair, because it helps all landlords.
D) unfair.
E) fair, because it helps more renters than it harms.
Topic: Rent ceiling, unfairness
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Ethical understanding and reasoning
7.2 Price Floors
1) A price floor is
A) the highest possible legal price 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 lowest legal price at which a good or service can be traded.
D) a legal price of zero that can be charged for a good or service.
E) almost always equal to the price ceiling.
Topic: Price floor
Skill: Level 1: Definition
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
2) A price floor makes prices
A) below the price floor illegal.
B) above the price floor illegal.
C) below the equilibrium price illegal.
D) above the equilibrium price illegal.
E) None of the above answers is correct.
Topic: Price floor
Skill: Level 1: Definition
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
3) Which of the following is an example of a price floor?
A) a law passed in a city to lower apartment rents by setting the maximum price that can be charged for rent
B) an equilibrium price
C) a minimum wage law
D) a law setting the highest price that can legally be charged for a gallon of gasoline
E) None of the above answers give examples of a price floor.
Topic: Price floor
Skill: Level 1: Definition
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
4) A price floor set above the equilibrium price
A) creates a surplus.
B) creates a shortage.
C) creates excess demand.
D) balances supply and demand.
E) has no effect.
Topic: Price floor, surplus
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
5) A price floor
A) changes the equilibrium price if it is imposed in black markets.
B) changes the price and quantity if it is set below the equilibrium price.
C) changes the price and quantity if it is set above the equilibrium price.
D) does not create a black market if it is set above the equilibrium price.
E) changes the price and quantity only if it equals the equilibrium price.
Topic: Price floor, surplus
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
6) Suppose the equilibrium price of a gallon of milk is $4. If the government imposes a price floor of $5 per gallon of milk, the
A) quantity supplied of milk falls short of the quantity demanded.
B) quantity supplied of milk exceeds the quantity demanded.
C) supply increases.
D) demand decreases.
E) price of milk remains $4 per gallon.
Topic: Price floor, surplus
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
7) Suppose the equilibrium price of a gallon of milk is $4. If the government imposes a price floor of $5 per gallon of milk
A) the quantity supplied of milk exceeds the quantity demanded.
B) the quantity supplied of milk falls short of the quantity demanded.
C) the supply increases.
D) the market will not be affected.
E) there will be a shortage of milk.
Topic: Price floor
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
8) In the labor market, as wages rise, households
A) decrease the quantity of labor supplied.
B) increase the quantity of labor supplied.
C) decrease the quantity of labor demanded.
D) increase the quantity of labor demanded.
E) increase the supply of labor.
Topic: Labor market
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
9) A stated goal of a minimum wage is to
A) increase government tax revenue.
B) stabilize production costs.
C) boost the incomes of low-wage earners.
D) decrease business profits.
E) increase business profits by making the labor market more efficient.
Topic: Minimum wage
Skill: Level 1: Definition
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
10) In a competitive labor market, a minimum wage law set above the equilibrium wage rate
A) creates a shortage of labor.
B) causes equality between the quantity of labor supplied and the quantity demanded.
C) creates a surplus of labor.
D) lowers the wage rate paid to workers.
E) has no impact.
Topic: Minimum wage, employment
Skill: Level 2: Using definitions
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
11) Why do some workers lose their job when the minimum wage is increased?
A) The increase in labor costs decreases the supply of the product, thereby raising the price of the good so that the equilibrium quantity decreases to zero.
B) The increase in the minimum wage decreases the quantity of labor demanded.
C) The demand for labor is perfectly inelastic.
D) The supply of labor decreases.
E) The demand for labor is perfectly elastic.
Topic: Minimum wage, employment
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
12) A minimum wage increases unemployment by
A) increasing the quantity of labor demanded.
B) decreasing the quantity of labor demanded.
C) shifting only the labor supply curve rightward.
D) shifting only the labor demand curve leftward.
E) shifting the labor supply curve rightward and shifting the labor demand curve leftward.
Topic: Minimum wage, employment
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
13) Suppose the current equilibrium wage rate for housekeepers is $8.60 per hour. An increase in the minimum wage to $8.50 per hour leads to
A) a surplus of housekeepers.
B) a shortage of housekeepers.
C) no change in the market for housekeepers.
D) an increase in the quantity of housekeepers supplied.
E) unemployment of housekeepers.
Topic: Minimum wage, employment
Skill: Level 2: Using definitions
Section: Checkpoint 7.2
Status: Revised
AACSB: Analytical thinking
14) Suppose the equilibrium wage rate for apricot pickers is $7.00 per hour and at that wage rate the equilibrium quantity of apricot pickers employed is 14,000. If the minimum wage is set at $7.50 per hour, then the
A) quantity of apricot pickers employed increases.
B) quantity of apricot pickers employed decreases.
C) quantity of apricot pickers employed does not change.
D) wage rate for apricot pickers decreases.
E) quantity of apricot pickers demanded does not change, and the quantity of apricot pickers supplied does not change.
Topic: Minimum wage, employment
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
15) Suppose the current equilibrium wage rate for landscapers is $7.65 in Little Rock; $8.50 in St. Louis and $9.95 in Raleigh. An increase in the minimum wage to $8.50 per hour results in unemployment of landscapers in
A) Little Rock and St. Louis.
B) only Raleigh.
C) Little Rock, St. Louis, and Raleigh.
D) only Little Rock.
E) St. Louis and Raleigh.
Topic: Minimum wage, employment
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Revised
AACSB: Analytical thinking
16) Suppose the equilibrium wage rate for apricot pickers is $9.00 per hour in California and at that wage rate the equilibrium quantity of apricot pickers is 14,000. If the minimum wage is set at $7.50 per hour, then the
A) quantity of apricot pickers employed increases.
B) quantity of apricot pickers employed decreases.
C) quantity of apricot pickers employed does not change.
D) wage rate for apricot pickers increases.
E) some apricot pickers are unemployed.
Topic: Minimum wage, employment
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
17) The labor demand and labor 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) there is no shortage or surplus of workers.
C) 900 workers are employed.
D) Both answers B and C are correct.
E) Both answers A and C are correct.
Topic: Minimum wage, employment
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
18) The labor demand and labor supply schedules are given in the table above. If a minimum wage of $9 per hour is imposed
A) a surplus of 300 workers occurs.
B) a shortage of 300 workers occurs.
C) there is no surplus or shortage of workers.
D) the quantity demanded is 1,000 workers.
E) there is unemployment of 700 workers.
Topic: Minimum wage, employment
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
19) The graph shows the market for labor. If the government imposes a minimum wage of $15 per hour, which of the following will occur?
i. 50,000 workers will be hired.
ii. 100,000 people will be unemployed.
iii. A deadweight loss will occur.
A) i and iii
B) i only
C) i and ii
D) i, ii and iii
E) ii only
Topic: Minimum wage
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
20) The graph shows the market for labor. Prior to the minimum wage law of $15 per hour, ________ workers are hired at ________ per hour. After the law, ________ workers are hired.
A) 150,000; $15; 150,000
B) 150,000; $9; 50,000
C) 150,000; $9; 150,000
D) 150,000; $15; 250,000
E) 150,000; $9; 250,000
Topic: Minimum wage
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
21) The figure shows the labor market. As a result of the minimum wage law of $15 per hour, ________ workers are hired and exactly ________ people are unemployed.
A) 50,000; 100,000
B) 150,000; 50,000
C) 50,000; 200,000
D) 50,000; 0
E) 250,000; 0
Topic: Minimum wage
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
22) The figure shows the labor market for fast food workers. A minimum wage of ________ per hour will create unemployment of ________ workers.
A) $9; 150,000
B) $15; 150,000
C) $6; 75,000
D) $15; 100,000
E) $15; 250,000
Topic: Minimum wage
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
23) The figure shows the market for fast food workers. If the government imposes a minimum wage of $15 per hour, ________ workers will be fired and the remaining jobs will be allocated by ________.
A) 100,000; increased job search activity and illegal hiring
B) 150,000; increased job search activity and illegal hiring
C) 50,000; increased job search activity and illegal hiring
D) 50,000; decreased job search activity and a black market
E) 150,000; a black market.
Topic: Minimum wage, efficiency
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
24) When the government imposes a minimum wage law
A) an inefficient outcome occurs and total surplus shrinks.
B) an efficient outcome occurs because more people get jobs.
C) an efficient outcome occurs because people earn higher wages.
D) an efficient outcome occurs because only the most efficient workers find jobs.
E) an inefficient outcome occurs and producer surplus increases.
Topic: Minimum wage, efficiency
Skill: Level 5: Critical thinking
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
25) The figure shows the market for fast food workers. As a result of a minimum wage of $16 per hour, a deadweight loss equal to the area ________ occurs. Resources lost to job search are shown by area ________.
A) A; B
B) E; B
C) C; A
D) C; B
E) C; D
Topic: Minimum wage, efficiency
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Revised
AACSB: Application of knowledge
26) The figure above shows the labor market in a region. For a minimum wage to change the wage rate and amount of employment, it must be
A) left to the forces of supply and demand.
B) set above $6 an hour.
C) set equal to $6 an hour.
D) set below $6 an hour.
E) set at $12 per hour.
Topic: Minimum wage, employment
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
27) The figure above shows the labor market in a region. If a minimum wage of $8 an hour is imposed, then there are ________ unemployed workers.
A) 20,000
B) 40,000
C) 60,000
D) 80,000
E) zero
Topic: Minimum wage, employment
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
28) The figure above shows the labor market in a region. If a minimum wage of $8 an hour is imposed, then the quantity of labor supplied is ________ and the quantity of labor demanded is ________.
A) 60,000; 60,000
B) 80,000; 40,000
C) 40,000; 60,000
D) 60,000; 40,000
E) 40,000; 40,000
Topic: Minimum wage, employment
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
29) The figure above shows the labor market in a region. In which of the following cases would the amount of unemployment be the largest?
A) when the market is at its equilibrium, with no minimum wage
B) when a minimum wage of $4 an hour is imposed
C) when a minimum wage of $6 an hour is imposed
D) when a minimum wage of $8 an hour is imposed
E) None of the above because the market will adjust so that there is no unemployment.
Topic: Minimum wage, unemployment
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
30) One result of the minimum wage is
A) a black market for labor that pays more than the minimum wage.
B) a black market for labor that pays less than the minimum wage.
C) decreased job search activity.
D) a decrease in unemployment among poor and unskilled workers.
E) an increase in employment among poor and unskilled workers.
Topic: Minimum wage, black market
Skill: Level 2: Using definitions
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
31) One result of a minimum wage is
A) illegal hiring of people at wages below the minimum wage.
B) more people with jobs.
C) a change in the equilibrium wage.
D) lower costs paid by firms.
E) fewer people searching for work because they realize that firms have decreased the number of people hired.
Topic: Minimum wage, black market
Skill: Level 2: Using definitions
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
32) A minimum wage law
A) lowers the wage rate of workers who are able to get a job.
B) increases employment.
C) increases the time spent searching by workers who cannot find a job.
D) creates efficiency in the labor market.
E) must be set below the equilibrium wage rate in order to have an impact.
Topic: Minimum wage, search
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
33) An increase in the minimum wage to $15 per hour would lead to
A) an increase in search activity for many workers.
B) a decrease in search activity for many workers.
C) a decrease in unemployment.
D) no change in unemployment.
E) no change in employment.
Topic: Minimum wage, search
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
34) Suppose the marginal benefit the owner of a cherry orchard derives from hiring Lauren to pick cherries is $11 per hour. If the wage rate that Lauren earns is $10 per hour, then the orchard owner's surplus from Lauren's labor is ________ per hour.
A) $10
B) $21
C) $1
D) $11
E) $0
Topic: Demand for labor, surplus
Skill: Level 2: Using definitions
Section: Checkpoint 7.2
Status: Revised
AACSB: Analytical thinking
35) An efficient allocation of labor occurs when the
A) marginal benefit to workers exceeds the marginal benefit to firms.
B) marginal benefit to firms exceeds the marginal benefit to workers.
C) marginal cost to workers is equal to the marginal benefit to firms.
D) marginal cost and marginal benefit of both workers and the firms are equal to zero.
E) marginal benefit of workers exceeds the marginal cost to firms by as much as possible.
Topic: Minimum wage, efficiency
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
36) 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) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) does not change; decreases
Topic: Minimum wage, efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
37) A minimum wage set above the equilibrium wage
A) decreases the deadweight loss in the market.
B) decreases the workers' surplus because workers must spend resources looking for jobs.
C) increases the firm's surplus.
D) increases the market's efficiency.
E) has no effect on the market.
Topic: Minimum wage, efficiency
Skill: Level 2: Using definitions
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
38) A minimum wage that is above the equilibrium wage rate
A) increases efficiency within the labor market.
B) increases the quantity of labor demanded.
C) creates a deadweight loss.
D) has no effect on the labor market because it is set above the equilibrium wage rate.
E) None of the above answers is correct.
Topic: Minimum wage, deadweight loss
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
39) A minimum wage
A) increases all workers' surplus because the wage rate increases.
B) increases consumer surplus because the price of the good decreases.
C) decreases the firms' surplus because fewer workers are hired at the higher wage.
D) increases the firms' surplus and the workers' surplus because it increases the efficiency of the labor market.
E) None of the above answers is correct.
Topic: Minimum wage, deadweight loss
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
40) 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) Losers are all firms and some workers, while gainers are other workers.
D) Gainers are some firms and all workers, while losers are some firms.
E) Gainers are some firms and some workers, while losers are other firms and other workers.
Topic: Minimum wage, deadweight loss
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
41) The people who immediately benefit from a minimum wage are
A) employers who now pay the minimum wage.
B) those people who enter the labor force to search for minimum wage jobs.
C) the workers who retain their jobs after enactment of the minimum wage.
D) everyone, both demanders and suppliers, because the minimum wage benefits everyone.
E) all workers.
Topic: Minimum wage, deadweight loss
Skill: Level 2: Using definitions
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
42) In the figure above, if the wage rate is $6 per hour, then the
A) firms' surplus is the area d + e + f.
B) workers' surplus is the area a + b + c.
C) deadweight loss equals zero.
D) Only answers A and C are correct.
E) Answers A, B, and C are correct.
Topic: Minimum wage, efficiency
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
43) 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) d; b
C) a; f
D) f; a
E) a + b + c + d + e; f
Topic: Minimum wage, efficiency
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
44) 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) it is legal to hire workers for a wage below the minimum wage because otherwise unemployment would result.
C) the deadweight loss is minimized.
D) Both answers A and B are correct.
E) Both answers B and C are correct.
Topic: Minimum wage, efficiency
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
45) The above figure shows a labor 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) 60,000
C) 80,000
D) fewer than 40,000
E) more than 80,000
Topic: Minimum wage, employment
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
46) The above figure shows a labor market. Before the minimum wage of $8 an hour is imposed, employment equals ________ workers; after the minimum wage of $8 an hour is imposed, employment equals ________ workers.
A) 80,000; 40,000
B) 40,000; 80,000
C) 60,000; 40,000
D) 60,000; 80,000
E) 80,000; 60,000
Topic: Minimum wage, employment
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
47) The above figure shows a labor market with a minimum wage of $8 an hour. The value of the resources workers are willing to use in their job search equals the distance between point ________ and point ________.
A) a; d
B) a; b
C) b; c
D) a; c
E) c; d
Topic: Minimum wage, search
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
48) The above figure shows a labor market with a minimum wage of $8 an hour. The deadweight loss equals the
A) area abc.
B) distance ab.
C) distance ad.
D) area bad.
E) area acd.
Topic: Minimum wage, deadweight loss
Skill: Level 2: Using definitions
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
49) The above figure shows the market for finish carpenters in Bozeman. If there is a minimum wage set at $18, then there will be
A) unemployment of 200,000 workers.
B) a surplus of 200,000 workers.
C) unemployment of 400,000 workers.
D) a surplus of 400,000 workers.
E) no unemployment of workers and no surplus of workers.
Topic: Minimum wage, unemployment
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Revised
AACSB: Analytical thinking
50) The above figure shows the market for finish carpenters in Bozeman. If there is a minimum wage set at $18, what is TRUE?
A) The lowest wage for which someone is willing to work is $18 an hour.
B) The quantity of jobs increases to 400,000.
C) The lowest wage for which someone is willing to work is $20 an hour.
D) 200,000 workers are employed.
E) The quantity of jobs demanded is more than the quantity supplied.
Topic: Minimum wage, unemployment
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Revised
AACSB: Analytical thinking
51) The above figure shows the market for finish carpenters in Bozeman. If there is a minimum wage set at $18, which of the following statements is TRUE?
A) Firms' surplus increases with the minimum wage.
B) Workers who retain their jobs have their wages rise.
C) The market is efficient.
D) The quantity supplied of workers is less that quantity demanded.
E) Unemployment decreases because firms employ their workers more carefully.
Topic: Minimum wage
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
52) The above figure shows the market for finish carpenters in Bozeman. There is a minimum wage set at $18. Compared to the initial equilibrium without the minimum wage, once the minimum wage is in place, the workers' total surplus ________ and the firms' total surplus ________.
A) decreases; increases
B) increases; increases
C) increases; decreases
D) does not change; increases
E) decreases; decreases
Topic: Minimum wage, efficiency
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
53) The above figure shows a labor market with 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
Topic: Minimum wage, deadweight loss
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
54) The above figure shows a labor market with 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
Topic: Minimum wage, deadweight loss
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
55) The above figure shows a labor market with 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
Topic: Minimum wage, deadweight loss
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
56) The above figure shows a labor market with 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
Topic: Minimum wage, search
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
57) The above figure shows the market for biologists. The government decides to set a minimum wage for biologists of $18 per hour. After this minimum wage is in effect, the firms' surplus equals
A) $800.
B) $900.
C) $1,800.
D) $400.
E) $200.
Topic: Minimum wage, deadweight loss
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
58) The above figure shows the market for biologists. The government decides to set a minimum wage for biologists of $18 per hour. After this minimum wage is in effect, and taking account of the resources lost in job search, workers' surplus equals
A) $800.
B) $900.
C) $400.
D) $1,800.
E) $200.
Topic: Minimum wage, deadweight loss
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
59) The above figure shows the market for biologists. The government decides to set a minimum wage for biologists of $18 per hour. After this minimum wage is in effect, the deadweight loss equals
A) $400.
B) $200.
C) $800.
D) $1,600.
E) $100.
Topic: Minimum wage, deadweight loss
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
60) The above figure shows the market for biologists. The government decides to set a minimum wage for biologists of $18 per hour. After this minimum wage is in effect, unemployment equals ________ workers.
A) 100
B) 300
C) 400
D) 500
E) 200
Topic: Minimum wage, unemployment
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
61) A price floor is considered
A) "fair" based only on the fair results view.
B) "fair" based only on the fair rules view.
C) "unfair" based on both the fair results and fair rules views.
D) "unfair" based only on the fair results view.
E) "fair" based on the fair results view and on the fair rules view.
Topic: Price floor, fairness
Skill: Level 2: Using definitions
Section: Checkpoint 7.2
Status: Old
AACSB: Ethical understanding and reasoning
62) Is the minimum wage fair?
A) Yes, because all workers benefit because they are paid more.
B) No, because it enhances the prospects of voluntary exchange.
C) No, because workers who lose their jobs are made worse off.
D) Yes, because firms must pay a wage closer to a living wage.
E) Yes, because workers need the extra income.
Topic: Minimum wage, unfairness
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Ethical understanding and reasoning
63) 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 only those workers who are able to find and keep a job.
D) benefits nobody.
E) cannot be enforced.
Topic: Minimum wage, unfairness
Skill: Level 2: Using definitions
Section: Checkpoint 7.2
Status: Old
AACSB: Ethical understanding and reasoning
64) Labor unions ________ increases in the minimum wage because an increase in the minimum wage ________ the demand for union labor.
A) support; increases
B) support; decreases
C) oppose; increases
D) oppose; decreases
E) support; has no effect on
Topic: Minimum wage, support
Skill: Level 2: Using definitions
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
65) Labor unions support the minimum wage because
A) the increased unemployment is good for labor.
B) the value associated with the deadweight loss goes to labor unions.
C) labor unions prefer to operate in black markets.
D) it puts upward pressure on all wages.
E) union members are usually paid the minimum wage.
Topic: Minimum wage, support
Skill: Level 2: Using definitions
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
66) A price floor
A) is the highest price at which it is legal to trade a particular good, service, or factor of production.
B) is the lowest price at which it is legal to trade a particular good, service, or factor of production.
C) is an illegal price to charge.
D) is the equilibrium price when the stock market crashes.
E) is the lowest price for which the quantity demanded equals the quantity supplied.
Topic: Price floor
Skill: Level 1: Definition
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
67) A price floor is a price
A) below which a seller cannot legally sell.
B) above which a seller cannot legally sell.
C) that creates a shortage of the good if it is set above the equilibrium price.
D) Both answers A and C are correct.
E) Both answers B and C are correct.
Topic: Price floor
Skill: Level 1: Definition
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
68) The graph shows the labor market for farm workers in an undeveloped nation. The lower the wage rate, the ________ is the quantity of farm workers that firms demand and the ________ is the quantity of farm workers that households are willing to supply.
A) greater; smaller
B) greater; greater
C) smaller; greater
D) smaller; smaller
E) None of the above answers is correct because both the demand and supply curves will shift in response to the change in the wage rate.
Topic: Labor market
Skill: Level 2: Using definitions
Section: Checkpoint 7.2
Status: Revised
AACSB: Analytical thinking
69) To be effective in raising people's wages, a minimum wage must be set
A) above the equilibrium wage rate.
B) below the equilibrium wage rate.
C) equal to the equilibrium wage rate.
D) below $7.
E) either above or below the equilibrium wage depending on whether the supply curve of labor shifts rightward or leftward in response to the minimum wage.
Topic: Minimum wage
Skill: Level 1: Definition
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
70) A minimum wage set above the equilibrium wage rate
A) increases the quantity of labor services supplied.
B) decreases the quantity of labor services supplied.
C) has no effect on the quantity of labor services supplied.
D) shifts the labor supply curve rightward.
E) shifts the labor supply curve leftward.
Topic: Minimum wage, employment
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
71) A minimum wage set above the equilibrium wage will ________ the quantity of labor demanded and ________ the quantity of labor supplied.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
E) not change; not change
Topic: Minimum wage, employment
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
72) Suppose the current equilibrium wage rate for lifeguards in Houston is $7.85 an hour. A minimum wage law that creates a price floor of $8.50 an hour leads to
A) a surplus of lifeguards in Houston.
B) a shortage of lifeguards in Houston.
C) no changes in the lifeguard market.
D) a change in the quantity of lifeguards supplied but no change in the quantity of lifeguards demanded.
E) an increase in the number of lifeguards employed.
Topic: Minimum wage, employment
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
73) The graph shows the labor market for teenagers in Cape Coast, a city in Ghana. If the government sets a minimum wage of $6 an hour, the number of teenagers employed is
A) 7,000.
B) 5,000.
C) 4,000.
D) 3,000.
E) less than 3,000.
Topic: Minimum wage, employment
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Revised
AACSB: Analytical thinking
74) If the minimum wage is above the equilibrium wage rate, then an increase in the minimum wage ________ employment and ________ unemployment.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) does not change; increases
Topic: Minimum wage, employment
Skill: Level 1: Definition
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
75) The graph shows the labor market for teenagers in Manta, a city in Ecuador. If the government sets a minimum wage of $5 an hour, ________ apple pickers are unemployed.
A) 6,000
B) 8,000
C) 10,000
D) 14,000
E) more than 14,000
Topic: Minimum wage, unemployment
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Revised
AACSB: Analytical thinking
76) If a minimum wage is introduced that is above the equilibrium wage rate
A) the quantity of labor demanded increases.
B) job search activity increases.
C) the supply of labor increases and the supply of labor curve shifts rightward.
D) unemployment decreases because more workers accept jobs at the higher minimum wage rate.
E) the quantity of labor supplied decreases because of the increase in unemployment.
Topic: Minimum wage, search
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
77) The graph shows the labor market for teenagers in Atlanta. If the government sets a minimum wage of $6 an hour, then the maximum amount that a teenager would be willing to spend on job search is ________ an hour.
A) $2
B) $4
C) $5
D) $6
E) $3
Topic: Minimum wage, search
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
78) The minimum wage is set above the equilibrium wage rate. Does the minimum wage create inefficiency?
A) yes
B) no
C) only if the supply of labor is perfectly inelastic
D) only if the supply of labor is perfectly elastic
E) only if employment exceeds the efficient amount
Topic: Minimum wage, efficiency
Skill: Level 1: Definition
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
79) A minimum wage set above the equilibrium wage rate creates
A) efficiency because it increases most workers' wages.
B) efficiency because few workers lose their jobs.
C) efficiency because workers can earn a living wage.
D) inefficiency and a deadweight loss.
E) inefficiency because it creates excessive employment.
Topic: Minimum wage, efficiency
Skill: Level 1: Definition
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
80) The graph shows the labor market for fast-food workers in Sioux City. If the government sets a minimum wage of $7 an hour, then the labor market is ________, and marginal benefit ________ marginal cost.
A) inefficient; is less than
B) inefficient; equals
C) efficient; equals
D) inefficient; is greater than
E) inefficient; cannot be compared to
Topic: Minimum wage, efficiency
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
81) When the minimum wage is raised, the ________ union labor ________.
A) demand for; increases
B) demand for; decreases
C) supply of; increases
D) supply of; decreases
E) demand for; does not change
Topic: Minimum wage, support
Skill: Level 2: Using definitions
Section: Checkpoint 7.2
Status: Old
AACSB: Reflective thinking
7.3 Production Quotas
1) A production quota
A) is a government regulation limiting the maximum amount that can be supplied.
B) increases market efficiency.
C) reduces the deadweight loss in a market.
D) results in lower prices in the market.
E) helps consumers but not producers.
Topic: Production quota
Skill: Level 1: Definition
Section: Checkpoint 7.3
Status: Old
AACSB: Application of knowledge
2) To have an effective production quota, the government must set the quota so it is ________ the equilibrium quantity.
i. less than
ii. equal to
iii. more than
A) i only
B) ii only
C) iii only
D) i and iii
E) i, ii, and iii
Topic: Production quota
Skill: Level 2: Using definitions
Section: Checkpoint 7.3
Status: Old
AACSB: Reflective thinking
3) Which of the following is TRUE regarding production quotas in the dairy market?
i. Compared to an unregulated market, output will decrease.
ii. The dairy market will suffer a deadweight loss.
iii. Market efficiency is improved in the dairy market because farmers' profit increases.
A) ii only
B) i, ii and iii
C) i and iii
D) iii only
E) i and ii only
Topic: Production quota
Skill: Level 2: Using definitions
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
4) An effective production quota ________ producers and ________ a deadweight loss.
A) has no effect on; does not create
B) benefits; creates
C) harms; creates
D) benefits; does not create
E) harms; does not create
Topic: Production quota
Skill: Level 3: Using models
Section: Checkpoint 7.3
Status: Old
AACSB: Reflective thinking
5) An effective production quota ________ inefficiency and ________ unfair.
A) has no effect on; is not
B) creates; is
C) creates; is not
D) does not create; is
E) does not create; is not
Topic: Production quota
Skill: Level 3: Using models
Section: Checkpoint 7.3
Status: Old
AACSB: Reflective thinking
6) The figure shows the market for milk. As a result of the production quota, the market price
A) increases from $3 to $5 per gallon.
B) increases from $2 to $5 per gallon.
C) decreases from $5 to $2 per gallon.
D) decreases from $5 to $3 per gallon.
E) will be unchanged because the quota will be ineffective.
Topic: Production quota
Skill: Level 3: Using models
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
7) The figure shows the market for milk. As a result of the production quota
A) consumer surplus shrinks by area ABE.
B) a deadweight loss of area ABE occurs.
C) a deadweight loss of area ABC occurs.
D) the price increases from $1 to $5.
E) the quantity produced increases from 20 thousand to 40 thousand gallons.
Topic: Production quota
Skill: Level 4: Applying models
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
8) The figure shows the market for milk. As a result of the production quota, the consumer surplus shrinks by area ________ and a deadweight loss of area ________ occurs.
A) ABE; ABE
B) ABC; ABE
C) ABC; ACE
D) ACE; ABE
E) ABE; ACE
Topic: Production quota
Skill: Level 4: Applying models
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
9) The figure shows the market for milk. As a result of the production quota, which of the following are TRUE?
i. Quantity produced decreases from 40 thousand to 20 thousand gallons.
ii. Price increases from $3 to $5 per gallon.
iii. A deadweight loss of ABE occurs.
A) i, ii and iii
B) i only
C) i and ii only
D) ii and iii only
E) ii only
Topic: Production quota
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
10) The figure shows the market for milk. As a result of the production quota, the price of a gallon of milk ________ and the quantity of milk produced ________.
A) does not change; does not change
B) changes from $3 to $5 per gallon; does not change
C) does not change; changes from 40 thousand to 20 thousand gallons
D) changes from $5 to $3 per gallon; changes from 20 thousand to 40 thousand gallons.
E) changes from $3 to $5 per gallon; changes from 40 thousand to 20 thousand gallons
Topic: Production quota
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
7.4 Chapter Figures
The figure above shows the supply and demand curves in the market for rental housing. A rent ceiling is set at $400 per month.
1) In the figure above, with the rent ceiling the quantity of housing supplied is ________ units, the quantity demanded is ________ units, and the quantity rented is ________ units.
A) 3,000; 6,000; 3,000
B) 3,000; 6,000; 6,000
C) 3,000; 6,000; 4,000
D) 3,000; 3,000; 3,000
E) 4,000; 4,000; 4,000
Topic: Rent ceiling
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
2) In the figure above, with the rent ceiling
A) there is a shortage of 3,000 units.
B) there is a surplus of 3,000 units.
C) there is a surplus of 2,000 units.
D) there is a shortage of 1,000 units.
E) the market is in equilibrium.
Topic: Rent ceiling, shortages
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
3) In the figure above, with the rent ceiling ________ units of housing are available, and black market rents might be as high as ________ a month.
A) 3,000; $625
B) 6,000; $400
C) 3,000; $550
D) 4,000; $550
E) 4,000; $625
Topic: Rent ceiling, black market
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
The figure above shows the supply and demand curves in the market for rental housing. A rent ceiling is set at $400 per month.
4) As shown in the figure above, the rent ceiling
A) decreases consumer surplus.
B) increases producer surplus.
C) decreases deadweight loss.
D) increases the quantity of housing rented.
E) is efficient.
Topic: Rent ceiling, deadweight loss
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
5) As shown in the figure above, the rent ceiling ________ consumer surplus and ________ producer surplus.
A) decreases; decreases
B) decreases; increases
C) increases; increases
D) increases; decreases
E) decreases; does not change
Topic: Rent ceiling, deadweight loss
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
The figure above shows supply and demand in the market for labor. The government introduces a minimum wage of $7 per hour.
6) In the figure above, the number of workers employed is ________, and the wage paid is ________.
A) 3,000; $7 per hour
B) 7,000; $7 per hour
C) 5,000; $5 per hour
D) 5,000; $7 per hour
E) 3,000; $5 per hour
Topic: Minimum wage, employment
Skill: Level 2: Using definitions
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
7) In the figure above, the number of unemployed workers is
A) 4,000.
B) 3,000.
C) 2,000.
D) 5,000.
E) zero.
Topic: Minimum wage, unemployment
Skill: Level 2: Using definitions
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
8) The figure above shows that the lowest wage rate for which someone is willing to work is
A) $3 an hour.
B) $5 an hour.
C) $6 an hour.
D) $7 an hour.
E) $4 an hour.
Topic: Minimum wage
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
9) In the figure above, the deadweight loss is
A) $4,000 an hour.
B) $2,000 an hour.
C) $1,000 an hour.
D) $5,000 an hour.
E) zero.
Topic: Minimum wage, deadweight loss
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
10) The figure above shows that the value of the resources used in job-search activity can be as large as ________ per hour.
A) $12,000
B) $8,000
C) $6,000
D) $4,000
E) $2,000
Topic: Minimum wage, search
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
The figure above shows the market for sugar beets. The government intervenes in this market and sets a price floor at $35 a ton.
11) In the figure above, the quantity of sugar beets produced is ________ million tons per year, and the quantity bought by consumers is ________ million tons per year.
A) 30; 20
B) 20; 30
C) 25; 20
D) 20; 25
E) 25; 25
Topic: Price support
Skill: Level 2: Using definitions
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
12) The figure above shows that to make the price floor work, the government buys ________ million tons of sugar beets.
A) 10
B) 20
C) 30
D) 5
E) 15
Topic: Price support, subsidy
Skill: Level 2: Using definitions
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
13) The figure above shows that the government provides a subsidy to the farmers of ________ million.
A) $350
B) $1,050
C) $50
D) $100
E) $700
Topic: Price support, subsidy
Skill: Level 3: Using models
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
14) The figure above shows that the government subsidy accounts for ________ percent of the farmers' revenue.
A) 33
B) 67
C) 50
D) 100
E) 25
Topic: Price support, subsidy
Skill: Level 3: Using models
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
15) The figure above shows that the deadweight loss from the government's policy is
A) about $350 million.
B) about $25 million.
C) about $50 million.
D) about $100 million.
E) zero.
Topic: Price support, deadweight loss
Skill: Level 3: Using models
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
7.5 Integrative Questions
1) The shortage created by a rent ceiling below the equilibrium rent is smallest when the demand for housing is ________ and the supply of housing is ________.
A) elastic; elastic
B) elastic; inelastic
C) inelastic; elastic
D) inelastic; inelastic
E) unit elastic; unit elastic
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Analytical thinking
2) The shortage created by a price ceiling will likely be
A) smaller if the good is a necessity.
B) larger if the good is addictive.
C) smaller if the good is a luxury.
D) unaffected by the time that has elapsed since the price ceiling is implemented.
E) None of the above answers is correct.
Topic: Price ceiling, shortages
Skill: Level 5: Critical thinking
Section: Integrative
Status: Old
AACSB: Analytical thinking
3) The unemployment caused by minimum wage would be larger if
A) both labor demand and labor supply are more elastic.
B) both labor demand and labor supply are more inelastic.
C) minimum wage is set equal to the equilibrium wage rate.
D) minimum wage is set below the equilibrium wage rate.
E) both labor demand and labor supply are perfectly inelastic.
Topic: Minimum wage, unemployment
Skill: Level 5: Critical thinking
Section: Integrative
Status: Old
AACSB: Analytical thinking
4) The surplus created by a price floor will likely be
A) smaller if the good is a necessity.
B) larger if the good is addictive.
C) smaller if the good is a luxury.
D) unaffected by the time that has elapsed since the price ceiling is implemented.
E) None of the above answers is correct.
Topic: Price floor, surplus
Skill: Level 5: Critical thinking
Section: Integrative
Status: Old
AACSB: Analytical thinking
5) A regulation that sets the highest price at which it is legal to trade a good is a
A) production quota.
B) price floor.
C) price support.
D) price ceiling.
E) subsidy.
Topic: Integrative
Skill: Level 1: Definition
Section: Integrative
Status: Old
AACSB: Reflective thinking
6) A regulation that sets the lowest price at which it is legal to trade a good is a
A) search ceiling.
B) price floor.
C) production ceiling.
D) price ceiling.
E) subsidy.
Topic: Integrative
Skill: Level 1: Definition
Section: Integrative
Status: Old
AACSB: Reflective thinking
7) If the government imposes an effective ________, output decreases and ________ increases.
A) price support; consumer surplus
B) price floor; consumer surplus
C) production quota; producer surplus
D) price floor; marginal benefit to consumers
E) price ceiling; efficiency
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Analytical thinking
8) If the government imposes an effective ________, a deadweight loss ________.
A) price floor; does not occur
B) price ceiling; does not occur
C) price ceiling; occurs
D) production quota; does not occur
E) Both answers C and D are correct.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Reflective thinking
9) Producers favor a ________ because ________.
A) price ceiling; the equilibrium price increases
B) price support; the deadweight loss is minimized
C) price ceiling; total revenue increases
D) production quota; producer surplus increases
E) price ceiling; consumer surplus increases
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Reflective thinking
10) In order to have an impact, a ________ must be set below the equilibrium price, and when this occurs, ________.
A) price ceiling; consumer surplus increases
B) price floor; consumer surplus decreases
C) price ceiling; producer surplus decreases
D) price support; total revenue increases
E) price support; consumer surplus increases
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Analytical thinking
11) Which of the following describes a difference between a price support and a price ceiling?
A) A price support creates a deadweight loss while a price ceiling does not.
B) A price ceiling is a regulated price while a price support is a regulated quantity.
C) A price support decreases the quantity while a price ceiling does not.
D) A price ceiling increases the price above the equilibrium price while a price support does not.
E) A price support attempts to raise the price above the equilibrium price while a price ceiling does not.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Reflective thinking
12) Both production quotas and a price floor can
A) create a deadweight loss.
B) decrease output below the equilibrium quantity.
C) decrease the price below the equilibrium price.
D) increase consumer surplus.
E) have no effect on producer surplus.
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Reflective thinking
13) Which of the following is TRUE?
i. A price ceiling set above the equilibrium price has no effects.
ii. A price ceiling set below the equilibrium price creates a surplus.
iii. A price floor set above the equilibrium price has no effects.
A) only i
B) only ii
C) only iii
D) i and ii
E) ii and iii
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
14) Assume a market is producing efficiently. Which type of government intervention in this market might create a deadweight loss?
i. a price ceiling
ii. a price floor
iii. a production quota
A) i only
B) i and ii
C) iii only
D) ii and iii
E) i, ii, and iii
Topic: Efficiency
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Analytical thinking
15) Which of the following is TRUE?
i. A price ceiling is inefficient but fair.
ii. A price floor is inefficient and unfair.
iii. A production quota increases the quantity produced.
A) only i
B) only ii
C) only iii
D) i and ii
E) ii and iii
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
16) Which of the following is TRUE?
i. A price ceiling set below the equilibrium price decreases search activity.
ii. A minimum wage is an example of a price ceiling.
iii. A production quota decreases the quantity consumed.
A) only i
B) only ii
C) only iii
D) i and iii
E) ii and iii
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
17) Which of the following is TRUE?
i. A production quota is inefficient.
ii. A price floor set above the equilibrium price creates a surplus.
iii. A price ceiling set above the equilibrium price creates a black market.
A) only i
B) only ii
C) only iii
D) i and ii
E) ii and iii
Topic: Integrative
Skill: Level 2: Using definitions
Section: Integrative
Status: Old
AACSB: Reflective thinking
18) Which of the following can create a deadweight loss?
i. production quotas
ii. price floor
iii. price ceiling
A) i only
B) i and iii
C) ii and iii
D) i, ii and iii
E) i and ii
Topic: Integrative
Skill: Level 3: Using models
Section: Integrative
Status: Old
AACSB: Reflective thinking
19) Following a major natural disaster that destroys housing, a rent ceiling ________ be an effective policy to increase the quantity of more affordable housing for displaced residents because it would ________.
A) would not; discourage rebuilding and result in a shortage
B) would not; cause the quantity supplied to exceed the quantity demanded
C) would; cause increased search activity
D) would; create a black market that would result in a lower rent
E) would; encourage a greater quantity supplied
Topic: Price ceiling
Skill: Level 5: Critical thinking
Section: Integrative
Status: Old
AACSB: Analytical thinking
20) If an apartment owner charged ________ than a specified rent for housing, the government ________ impose a rent ceiling.
A) more; can
B) more; cannot
C) less; can
D) less; cannot
E) less; might
Topic: Price ceiling
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
21) If a rent ceiling is set ________ the equilibrium price, the effect can result in a housing ________.
A) below; surplus
B) below; shortage
C) above; shortage
D) above; surplus
E) equal to; surplus
Topic: Price ceiling, shortages
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
22) If a rent ceiling is set below the equilibrium price, thus creating a ________, housing may be allocated by increasing search activity or creating a ________.
A) shortage; black market
B) shortage; free market
C) surplus; black market
D) surplus; open market
E) surplus; free market
Topic: Price ceiling, shortages
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
23) A rent ceiling controls the rent portion of the cost of housing but not the search cost. So when the search cost is ________ the rent, some people end up paying a ________ opportunity cost for housing than they would if there were no rent ceiling.
A) added to; lower
B) subtracted from; higher
C) subtracted from; lower
D) added to; higher
E) equal to; lower
Topic: Price ceiling
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
24) If the quantity of housing demanded ________ the quantity of housing supplied, scarce housing resources are allocated efficiently because the marginal cost of the housing ________ the marginal benefit.
A) is more than; equals
B) is less than; equals
C) equals; is more than
D) equals; is less than
E) equals; equals
Topic: Price ceiling, efficiency
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
25) When a rent ceiling is ________, consumer surplus and producer surplus shrink, a deadweight loss ________, and resources are lost in search activity and evading the rent ceiling law.
A) inefficient; arises
B) inefficient; disappears
C) efficient; arises
D) efficient; disappears
E) nonexistent; arises
Topic: Price ceiling, efficiency
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
26) When a minimum wage is introduced ________ the equilibrium wage rate, the quantity of labor demanded ________ and the quantity of labor supplied ________, thus creating unemployment.
A) above; increases; decreases
B) below; increases; decreases
C) above; decreases; increases
D) above; decreases; decreases
E) below; decreases; decreases
Topic: Price floor
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
27) When a minimum wage is ________, the firms' surplus and workers' surplus shrink, a deadweight loss ________, and resources are lost in job search.
A) inefficient; arises
B) inefficient; disappears
C) efficient; arises
D) efficient; disappears
E) nonexistent; arises
Topic: Price floor, inefficiency
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
28) Nonunion labor is a substitute for union labor, so when the minimum wage ________, the demand for union labor ________.
A) rises; decreases
B) decreases; increases
C) decreases; decreases
D) rises; increases
E) rises; remains the same
Topic: Price floor
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
29) Import restriction in advanced economies deny developing economies access to the food market of the advanced economies. The result is ________ price and ________ farm production in the developing economies.
A) lower; larger
B) lower; smaller
C) higher; smaller
D) higher; larger
E) stable; smaller
Topic: Price support
Skill: Level 4: Applying models
Section: Checkpoint 7.3
Status: Old
AACSB: Analytical thinking
7.6 Essay: Price Ceilings
1) In the housing market, if a rent ceiling of $600.00 is imposed when the equilibrium rent is $500.00, why will nothing change?
Topic: Rent ceiling
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
2) What are the effects of a rent ceiling set below the equilibrium rent?
Topic: Rent ceiling
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Written and oral communication
3) In the 1980s, one of the most common sights in the socialist countries, such as the former Soviet Union and North Korea, were long lines for bread, sugar, and other necessities. These countries had price ceilings on these necessities. Some of the socialist nations, such as the former Soviet Union, have moved to a market economy by lifting the price ceilings, while others, such as North Korea, have retained their price ceilings. What prediction do you make about the presence (or absence) of long lines today in the former Soviet Union and North Korea? Explain your answer.
Topic: Price ceiling, shortages
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Old
AACSB: Written and oral communication
4) Explain why in cities such as New York City that have rent ceiling laws, so many people who work in the city commute from outside the city.
Topic: Rent ceiling, shortages
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Old
AACSB: Written and oral communication
5) Suppose that apartments rent for $1,300 a month in San Francisco, California and $850 a month in Los Angeles, California. If the state of California passes a state-wide rent ceiling for apartments of $1,100 a month, what occurs in the two cities?
In Los Angeles, the outcome differs. The rent ceiling is above the equilibrium rent and has no impact on the quantity demanded or the quantity supplied. If, however, Los Angeles grows so that the demand for housing increases enough, the time may come when the rent ceiling is below the equilibrium rent in Los Angeles, in which case the Los Angeles apartment market also would be marked by a shortage and black market.
Topic: Rent ceiling, shortages
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Written and oral communication
6) Why do rent ceilings lead to shortages and black markets?
Topic: Rent ceiling, black market
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Status: Old
AACSB: Written and oral communication
7) The table above gives the demand and supply schedules for the housing market in a small town. If a rent ceiling of $600 a month is imposed, what is the quantity demanded, the quantity supplied, and the shortage of housing?
Topic: Rent ceiling, shortages
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
8) The figure above illustrates the current market for apartments in Washington, D.C.
a. If the local government imposes a price ceiling of $1,500 per month, is there a shortage? If so, how much? If not, why not?
b. If the local government imposes a price ceiling of $900 per month, is there a shortage? If so, how much? If not, why not?
a. There is not a shortage. The equilibrium rent is $1,200 a month. Because the rent ceiling is above the equilibrium rent, it has no effect.
b. There is a shortage. At a rent of $900 per month, the quantity of units demanded is 100,000 and the quantity of units supplied is 60,000. Hence there is a shortage of 40,000 units.
Topic: Rent ceiling, shortages
Skill: Level 3: Using models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
9) The above figure shows the market for a prescription drug. What is the equilibrium price of the drug? How many doses are purchased? Suppose the government imposes a price ceiling of $1.50 a dose. How many doses are purchased after the price ceiling is imposed?
Topic: Price ceiling, shortages
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Status: Old
AACSB: Analytical thinking
7.7 Essay: Price Floors
1) Explain why a price floor set below the equilibrium price is ineffective.
Topic: Price floor
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Written and oral communication
2) Compare and contrast a price ceiling and a price floor.
Topic: Price ceiling and price floor
Skill: Level 2: Using definitions
Section: Checkpoint 7.2
Status: Old
AACSB: Written and oral communication
3) Will an increase in the minimum wage create more unemployment if the supply and demand for labor are highly elastic or highly inelastic?
Topic: Minimum wage, unemployment
Skill: Level 5: Critical thinking
Section: Checkpoint 7.2
Status: Old
AACSB: Written and oral communication
4) Why would an increase in the minimum wage to $15 per hour lead to more unemployment for teenage and low-skilled workers?
Topic: Minimum wage, unemployment
Skill: Level 2: Using definitions
Section: Checkpoint 7.2
Status: Old
AACSB: Written and oral communication
5) Explain why low-skilled workers find that their employment opportunities are less with a minimum wage.
Topic: Minimum wage, unemployment
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Written and oral communication
6) How does the elasticity of demand for labor affect the deadweight loss from an increase in the minimum wage? Why?
Topic: Minimum wage, unemployment
Skill: Level 5: Critical thinking
Section: Checkpoint 7.2
Status: Old
AACSB: Written and oral communication
7) Discuss the inefficiencies created by a price floor.
Topic: Price floor, inefficiency
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Written and oral communication
8) Who are minimum wages designed to help? Do they succeed? What is their effect on society?
Minimum wages harm society because they create a deadweight loss. In addition to the deadweight loss, minimum wages also:
∙ increase the amount of time it takes to find a job (search activity).
∙ encourage illegal hiring at wages below the minimum wage rate.
∙ block voluntary exchange at the equilibrium wage.
Topic: Minimum wage, support
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Written and oral communication
9) We know that the minimum wage causes unemployment. So, why does the government impose one?
Topic: Minimum wage, support
Skill: Level 4: Applying models
Section: Checkpoint 7.2
Status: Old
AACSB: Written and oral communication
10) The table above gives the supply and demand schedules for scooters. Because of increased injuries sustained by children riding scooters, Citizens Against Scooter Accidents successfully lobbies the government to impose a price floor of $80.00 on scooters.
a. What is the quantity demanded and supplied after the price floor has been imposed?
b. Is there any shortage or surplus at this price floor? If so, how much?
c. If the price floor is raised to $110.00, what is the quantity demanded and supplied?
d. At a price floor of $110.00, is there any shortage or surplus? If so, how much?
a. The quantity demanded and supplied is 100 scooters at $90, the equilibrium price. Because the price floor, which is the legal minimum price, is below the equilibrium price, it has no effect. The price stays at the equilibrium price of $90 per scooter and the quantity remains at the equilibrium quantity of 100 scooters.
b. There is no surplus or shortage at a price floor of $90 per scooter.
c. The quantity demanded at $110 is 80 scooters and quantity supplied is 140.
d. There is a surplus. The surplus equals the quantity supplied, 140 scooters, minus the quantity demanded, 80 scooters, or a 60 scooters per week surplus.
Topic: Price floor, surplus
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
11) The figure above illustrates the current market for fast-food workers in Baltimore.
a. Without any government intervention, what is the equilibrium wage rate and amount of employment?
b. If the city government imposes a minimum wage of $3 an hour, what is the amount of employment? Does the minimum wage create any unemployment? Why or why not?
c. If the city government imposes a minimum wage of $6 an hour, what is the amount of employment? Does the minimum wage create any unemployment? Why or why not?
a. The equilibrium wage rate is $4 an hour and the equilibrium amount of employment is 8,000 workers.
b. Employment remains 8,000 workers. The minimum wage does not create any unemployment. The $3 per hour minimum wage does not bring about any unemployment because it is below the equilibrium wage rate.
c. Employment decreases to 4,000 workers, the quantity of labor demanded at a wage rate of $6 per hour. At the wage rate of $6 per hour, the quantity of labor supplied is 12,000 workers and the quantity of labor demanded is 4,000 workers. Hence there are 8,000 workers unemployed. The minimum wage of $6 an hour creates unemployment because it is higher than the equilibrium wage rate. As a result, the quantity of labor supplied increases and the quantity of labor demanded decreases, leading to a situation of excess supply, or unemployment.
Topic: Minimum wage, employment and unemployment
Skill: Level 3: Using models
Section: Checkpoint 7.2
Status: Old
AACSB: Analytical thinking
7.8 Essay: Production Quotas
1) What is a production quota in an agricultural market? Explain its impact on a market.
Topic: Production quota
Skill: Level 1: Definition
Section: Checkpoint 7.3
Status: Old
AACSB: Written and oral communication
2) Who gains from a production quota? Who loses? Explain how the size of the gain compares to the size of the loss.
Topic: Production quota
Skill: Level 3: Using models
Section: Checkpoint 7.3
Status: Old
AACSB: Written and oral communication
3) Suppose that producers are richer than consumers. Is a production quota fair? Explain your answer.
Topic: Production quota
Skill: Level 5: Critical thinking
Section: Checkpoint 7.3
Status: Old
AACSB: Ethical understanding and reasoning
Document Information
Connected Book
Foundations of Microeconomics 9e | Test Bank with Answer Key by Robin Bade
By Robin Bade