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Economic Concepts: Rent Ceilings & Minimum Wage

Econ

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13 views7 pages

Economic Concepts: Rent Ceilings & Minimum Wage

Econ

Uploaded by

mahi04
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

MULTIPLE CHOICE.

Choose the one alternative that best completes the statement


or answers the question.
Use the figure below to answer the following questions.

Figure 6.1.1

1) Refer to Figure 6.1.1. If the demand for rental housing increases and the demand curve
shifts rightward from D0 to D1, and there is a strictly enforced rent ceiling of $150 per
room, 1) ___E____(Correct)

A) the number of rooms rented will increase to 2,000.


B) the number of rooms rented is 1,500.
C) there is a housing shortage of 500 rooms.
D) the number of rooms rented decreases to 1,000.
E) both B and C

2) If the government imposes a maximum rent for housing that is above the equilibrium
price, then you predict that 2) ___E____(CORRECT)

A) the demand curve for housing shifts rightward.


B) the law will generate a shortage of housing.
C) the supply curve of housing shifts leftward.
D) the law will create a surplus of housing.
E) the law will have no effect in the market for housing.

Use the figure below to answer the following questions.


Figure 6.1.2

3) Refer to Figure 6.1.2. If a rigorously enforced price ceiling is set at $10, then 3)
___E____(Correct)
A) 150 units will be sold at a price of $15 each.
B) 200 units will be sold at a price of $10 each.
C) 100 units will be sold at a price of $15 each.
D) 100 units will be sold at a price of $20 each.
E) 100 units will be sold at a price of $10 each.

4) An effective rent ceiling 4) ___D____(Correct)


A) increases producer surplus.
B) increases the supply of housing.
C) increases consumer surplus.
D) creates a deadweight loss.
E) decreases the supply of housing.

Figure 6.2.1
5) Refer to Figure 6.2.1. Suppose a $5 per hour minimum wage is in force. What is the
lowest wage per hour an unemployed person would be willing to accept? 5)
__C__(Incorrect A)

A) $3 B) $4 C) $5 D) $2 E) $1

Use the table below to answer the following questions.

Table 6.2.2

6) Refer to Table 6.2.2. What is the level of unemployment in millions of hours if the
minimum wage is set at $3 per hour? 6) ___E____ (Didn’t Answer), (quantity of labor
supplied is less that what is being demanded)

A) 70 B) 20 C) 30 D) 40 E) zero

7) Suppose the equilibrium wage is $10 an hour. A minimum wage is a price ___E____ that
will change the quantity of employment if it is set at ________ an hour. 7) _______

A) ceiling; $12
B) floor; $10
C) ceiling; $8
D) floor; $8
E) floor; $12

8) Suppose the demand for gasoline is inelastic, but not perfectly inelastic, and the supply
is elastic, but not perfectly elastic. A tax on gasoline is paid 8) ___A____

A) mostly by buyers.
B) equally by buyers and sellers.
C) totally by sellers.
D) mostly by sellers.
E) totally by buyers.

Use the figure below to answer the following questions.


Figure 6.3.1

9) Refer to Figure 6.3.1 showing the market for frisbees before and after a tax is imposed.
The tax on each frisbee is 9) ___E____

A) $5.60. B) $0.40. C) $6.60. D) $0.60. E) $1.00.

Figure 6.3.2

10) Refer to Figure 6.3.2. The deadweight loss from the sales tax is 10) ___C___
A) $1,000. B) $150. C) $100. D) $50. E) $200.

11) The buyer pays most of a tax if demand is relatively inelastic because 11) __A____
A) the buyer cannot easily substitute to other markets.
B) the seller cannot easily substitute to other goods.
C) there is a black market for this good.
D) the buyer can easily substitute to other markets.
E) the government forces the seller to bear the burden of the tax.
Figure 6.3.3

12) Refer to Figure 6.3.3. Suppose a tax of $1 is imposed. In which market would the seller
pay the highest portion of the tax? 12) ___c___

A) (a)
B) (b)
C) (c)
D) (d)
E) all markets equally

13) A subsidy is a 13) ___A___


A) payment made by the government to a producer.
B) payment made by foreign governments to domestic farmers.
C) payment made by a consumer to a producer.
D) tax imposed by the government on a producer.
E) tax imposed by the government on imported goods.

14) An effective production quota 14) ___D___


A) is inefficient because it results in overproduction.
B) is efficient because it results in overproduction.
C) is efficient because it results in underproduction.
D) is inefficient because it results in underproduction.
E) is efficient for quantities below the equilibrium quantity and is inefficient for quantities
above the equilibrium quantity.

15) Suppose the Canadian Dairy Commission sets a production quota for dairy production
above the equilibrium quantity. Then, 15) ___E___

A) the policy will raise the price of milk in the international market.
B) the policy will increase revenue received by dairy producers.
C) the policy will increase the quantity of milk produced in Canada.
D) the policy will decrease revenue received by dairy producers.
E) the policy will have no impact on the dairy industry.

Short Q/A

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?
Since the equilibrium is already set thereby renters will choose
the equilibrium price as opposed to a higher price. There by
this price ceiling would be ineffective.

2) What is the difference between a rent ceiling set below the


equilibrium rent and a rent ceiling set above the equilibrium rent?.
Above make no difference, however, below causes a shortage of
housing

3) What is a minimum wage? What are the effects of a minimum wage


set below the equilibrium wage rate?
Minimum wage is a price floor set for laborers to be paid in
that amount. Minimum wage set below equilibrium has no
effect.

4) How does a production quota influence farm prices and output?


If production quota is set above equilibrium quantity, it has no
effect. However is the quota is less than equilibrium quantity it
raises the price

Common questions

Powered by AI

Unequal price controls, such as ceilings or floors, distort market equilibrium, preventing the efficient allocation of resources. Ceilings can cause shortages, while floors can result in surpluses. Both scenarios lead to deadweight losses, where the total welfare is reduced as transactions that would benefit both buyers and sellers do not occur .

A production quota set below the equilibrium quantity causes economic inefficiency by creating underproduction. This leads to a higher market price and reduces consumer and producer surplus, generating a deadweight loss as the total welfare in the market decreases due to unmet demand and artificial scarcity .

Buyers bear most of the tax burden on gasoline due to its inelastic demand; consumers have limited alternatives and must continue purchasing gasoline despite the price increase. As a result, sellers can pass on most of the tax to buyers without losing significant sales volume .

Governments may impose production quotas resulting in underproduction to stabilize prices, support producer incomes, or protect the environment by reducing overexploitation of resources. However, these policies can lead to higher prices, reduced consumer choice, and inefficient resource allocation, potentially harming overall economic welfare .

An effective rent ceiling below the equilibrium rent creates a deadweight loss by decreasing the supply of housing. Landlords are less incentivized to rent at lower prices, leading to fewer available units, unmet demand, and reduced overall welfare in the housing market .

A minimum wage set below the equilibrium wage rate does not impact employment levels because employers are already willing to pay the market-clearing wage, which is higher than this floor. Thus, the wage floor is non-binding, and the market operates as if there were no minimum wage .

A rent ceiling set below the equilibrium rent leads to a housing shortage because the maximum allowable rent is less than what landlords could otherwise charge, reducing the incentive to supply housing. This creates an imbalance where demand exceeds supply, exemplifying the concept of price controls and their unintended consequences in competitive markets .

When a government-imposed maximum rent is set above the equilibrium price, it has no impact on the market. The ceiling is non-binding because the market-clearing rent remains lower than the legal maximum, so transactions occur at the equilibrium price .

Imposing a subsidy lowers production costs for producers, leading to an increase in supply. This causes the market equilibrium price to decrease and the equilibrium quantity to increase. However, subsidies can lead to government budget deficits and market distortions, creating inefficiencies if they promote overproduction .

Setting a production quota above the equilibrium quantity in the dairy industry makes the quota ineffective, as producers would not need to reduce their output. The market continues to operate at the equilibrium level, indicating that the quota has no impact on the dairy supply or prices .

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