Chapter 6

What will be the effect of a non binding price ceiling?

There will be no effect.

In the event of a binding price ceiling, what is one function that an illegal market services?

It reduces the shortage caused by the price ceiling.

Supply & Demand generally become more elastic in the long run. What does this imply about shortages caused by price ceilings?

Shortages caused by price ceilings become larger in the long run.

What is one unintended consequence of rent control?

Landlords may not maintain rental units.

A binding price ceiling will have which of the following consequences?

The quantity demanded will always exceed the quantity supplied.

Do all buyers benefit from a binding price ceiling?

No, a binding price ceiling benefits only some buyers because not all are able to obtain the good in the legal markets at the government-set price.

What can result from setting a price ceiling below the equilibrium price?

A shortage, where the quantity demanded exceeds the quantity supplied.

What is a correct statement about a rent control law?

A rent control law is a price ceiling law that makes apartments cheaper to rent but discourages property owners from renting out apartments.

What is the most likely cause of the government’s implementing a price floor on the market for soybeans?

Producers of soybeans know a price floor will protect their profits and they lobbied Congress for such legislation.

What is a consequence of a price floor?

An increase in the amount of resources devoted to the production of this good or service.

What is a binding price ceiling?

A government-set price that is set below the equilibrium price.

What is a correct statement about a minimum wage law?

It can cause prices to rise as producers pay more for labor.

What is the maximum legal price that can be charged for a good or service?

Price ceiling.

What is the long-run consequence of a price floor law?

A surplus will continue to exist and will grow larger over time.

What is rent control?

A price ceiling that applies to the market for apartment rentals.

What will happen in a market where a binding price floor is removed?

There will be downward pressure on the price.

What is a price gouging law?

Temporary ceilings on the prices that sellers can charge during times of emergency.

If a price floor is imposed at $15 per unit when the equilibrium market price is $12, what will occur?

A surplus.

What are some of the unintended effects of rent control?

Rent control decreases landlords’ profits and subsequently lowers their incentive to invest properly.

What is price control?

An attempt to set prices through government regulations in the market.

Why does a surplus exist under a binding price floor?

A price floor makes the price so high that the quantity supplied exceeds the quantity demanded in the legal market.

What is a correct statement regarding price controls?

Rent control is an illustration of a price ceiling and the minimum wage is an illustration of a price floor.