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Exam 5: Price Controls

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Question 21

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The government has imposed a price control for many agricultural products in an effort to support farmers. In the case of price floor P₂ in the accompanying figure, how much of a disequilibrium in quantity exists?

A) a shortage of 30,000 units
B) a surplus of 120,000 units
C) 30,000 units
D) a surplus of 30,000 units
E) an excess of $3

F) A) and B)
G) D) and E)

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Question 22

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Use the following information to answer the questions. Market for flat-screen TVs: Demand: Q_d = 2,600 - 5 P Supply: Q_s = -1,000 + 10 P -What would be the quantity supplied if a price ceiling is set at $400?

A) 600
B) 240
C) 0
D) 3,000
E) 2,400

F) All of the above
G) A) and E)

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Question 23

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Let's say that you have a friend who was caught illegally buying a good on the black market. When the judge asks you to describe your friend's motivation as a buyer, which of the following would most likely be your reply?

Use the following table to answer the questions. $\begin{array}{ccc}\text { Wage Rate }&\text { Quantity of Labor Demamed }&\text { Quantity of Labor Supplied }\\\$ 5.00 & 175,550,000 & 120,000,000 \\\$ 5.50 & 162,000,000 & 136,485,000 \\\$ 6.00 & 153,300,020 & 153,300,020 \\\$ 6.50 & 148,600,579 & 155,250,000 \\\$ 7.00 & 142,050,000 & 157,132,360 \\\$ 7.50 & 139,630,000 & 159,800,000 \\\$ 8.00 & 135,000,000 & 161,000,785\end{array}$ -If a minimum wage is established at $7.50, determine the amount of disequilibrium in the labor market.

Use the following table to answer the questions. $\begin{array}{ccc}\text { Wage Rate }&\text { Quantity of Labor Demamed }&\text { Quantity of Labor Supplied }\\\$ 5.00 & 175,550,000 & 120,000,000 \\\$ 5.50 & 162,000,000 & 136,485,000 \\\$ 6.00 & 153,300,020 & 153,300,020 \\\$ 6.50 & 148,600,579 & 155,250,000 \\\$ 7.00 & 142,050,000 & 157,132,360 \\\$ 7.50 & 139,630,000 & 159,800,000 \\\$ 8.00 & 135,000,000 & 161,000,785\end{array}$ -At what price level does the labor market reach equilibrium?

If the local government tells gas stations that they are not allowed to change the price of gas for three weeks during hurricane season, what will be the consequence?

Which of the following would be true in a city with rent-controlled apartments?

Why does a surplus exist under a binding price floor?

Explain why a shortage occurs in a market where a binding price ceiling exists. Does a price ceiling improve the operation of the market?

In a 1973 paper entitled "A Living Wage," published in Annals of the American Academy of Political and Social Science (vol. 409: 33-41), Daniel R. Fusfeld from the Department of Economics at the University of Michigan makes the following statement: The only effective way to eliminate poverty in the United States is to pay all workers a living wage. As long as working people labor in jobs in which earnings are inadequate to meet even the poverty standards of income, their families will remain poor; furthermore, their poverty will be reproduced from one generation to the next. Our society will continue to suffer from all of the ills associated with poverty: disease, degradation, crime, hostility and anger . This essay is a normative assessment of the living (or minimum) wage. In your short-answer essay, include the following elements: a. What is the purpose of a living wage? b. Compare and contrast the effects of a living-wage policy set in a labor market where the demand for workers is relatively price inelastic and one where it is relatively price elastic. Graph and explain your results.

Use the following information to answer the questions. Market for a new hardcover book: Demand: Q_d = 325 - 8 P Supply: Q_s = -60 + 3 P -What would be the equilibrium price for hardcover books?

What will happen in a market where a nonbinding price ceiling is removed?

Some states and localities have laws that make it illegal to resell event tickets at prices higher than the original, legal market price. What would be the positive and negative consequences to such a law?

Which of the following is an accurate statement about the consequence of a binding price floor?

Let's say that you are a politician who promises cheaper gasoline for everyone in the country if you are elected. Once you are elected, you make gas cheaper by imposing a price ceiling that is one full dollar less than the market's equilibrium price. What would be the reaction of the sellers of gasoline and of the public to your price ceiling law? Would you expect to be reelected in the long run?

What will I do differently as a seller in the black market in the long run?

What will I do differently as a buyer in the black market in the long run?

Use the following table to answer the questions. $\begin{array}{llll}&&\text { Market for Corn }\\\text { Year }&\text { Price }&\text { Quantity Demanled }&\text { Quantity Supplied }\\1 & \$ 2.00 & 200,000 & 100,000 \\2 & \$ 2.50 & 186,000 & 125,000 \\3 & \$ 3.00 & 184,000 & 141,000 \\4 & \$ 3.50 & 169,000 & 169,000 \\5 & \$ 4.00 & 161,000 & 181,000 \\6 & \$ 4.50 & 155,000 & 200,000 \\7 & \$ 5.00 & 120,000 & 223,000\end{array}$ -What would be the equilibrium price in the market for corn?

If a price ceiling or price floor existed where you lived, would you be willing to purchase products on the black market? What would you identify as a consequence to engaging in transactions on the black market over the short run and the long run?

Refer to the accompanying figure to answer the questions. -If there is a $180 price ceiling imposed on a textbook, what will be the disequilibrium amount?