Question 1

Suppose the government imposes a binding price floor above the equilibrium price in the wheat market. What is the most likely outcome?

Accepted Answer

There will be excess supply of wheat, leading to surpluses.

Question 2

A binding price ceiling is imposed on rental housing. In the short run, what happens to the quantity supplied and the quantity demanded?

Accepted Answer

Quantity supplied remains fixed, quantity demanded increases.

Question 3

Which of the following best describes the deadweight loss caused by a binding price floor?

Accepted Answer

It is the reduction in economic surplus due to fewer units being exchanged than at equilibrium.

Question 4

If a minimum wage is set above the equilibrium wage in a competitive labour market, what is the most likely effect?

Accepted Answer

Employment decreases and unemployment increases.

Question 5

Consider the market for rental housing with a binding rent control. Over time, what happens to the supply of rental accommodations?

Accepted Answer

Supply decreases as landlords withdraw units from the market.

Question 6

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

Accepted Answer

To maximize economic surplus.

Question 7

A hidden market arises when:

Accepted Answer

Products are sold at prices that violate legal price controls.

Question 8

Which group is most likely to benefit from rent controls in the long run?

Accepted Answer

Existing tenants in rent-controlled accommodations.

Question 9

Suppose the government issues output quotas restricting production to $$Q_1$$ units, where $$Q_1$$ \u003c $$Q_0. $$What happens to the market price and economic surplus?

Accepted Answer

Market price rises and economic surplus decreases.

Question 10

The market demand curve can be interpreted as:

Accepted Answer

The highest price consumers are willing to pay for each unit.

Question 11

Which formula best represents total economic surplus in a market?

Accepted Answer

$$\sum_{i=1}^{Q} (P_{d,i} - P_{s,i})$$

Question 12

In the context of market efficiency, what is the effect of a binding price ceiling on economic surplus?

Accepted Answer

Economic surplus is reduced, creating deadweight loss.

Question 13

Which of the following is a normative judgement in economic policy?

Accepted Answer

Deciding that social responsibility is more important than efficiency.

Question 14

During a pandemic, the government imposes a price ceiling on hand sanitizer. What is a likely unintended consequence?

Accepted Answer

Emergence of hidden markets selling at higher prices.

Question 15

If the supply curve for pizza is interpreted as 'cost,' what does each point on the curve represent?

Accepted Answer

The minimum price firms are willing to accept for producing and selling that pizza.

Question 16

Which policy alternative can reduce housing shortages caused by rent controls?

Accepted Answer

Subsidizing housing production or producing public housing directly.

Question 17

A binding price floor in a competitive market leads to:

Accepted Answer

A reduction in overall economic surplus and market inefficiency.

Question 18

Which of the following best explains why governments sometimes impose inefficient price controls?

Accepted Answer

To help specific groups, even if overall efficiency is reduced.

Question 19

In a free market, how is the quantity exchanged determined when there is disequilibrium?

Accepted Answer

By the lesser of quantity demanded and quantity supplied.

Question 20

Which of the following is a real-world example of a price floor?

Accepted Answer

Minimum wage legislation.

Price Controls and Market Efficiency: Microeconomics Study Notes

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