1.

A price control is:

A) control of the price of a good by the firm that produces it.
B) a legal restriction on how high or low a price in a market may go.
C) an upper limit on the quantity of some good that can be bought or sold.
D) a tax on the sale of a good that controls the market price.

Use the following to answer questions 2-10:

2. (Figure: Rent Controls) Use Figure: Rent Controls. Without rent controls, the
equilibrium quantity is:
A) Q4.
B) Q1.
C) Q2.
D) Q3.

3. (Figure: Rent Controls) Use Figure: Rent Controls. Suppose that rent controls are
imposed. If the government wanted a rent control ceiling to be effective immediately,
what is one possible price to set?
A) Rent3
B) Rent4
C) Rent1
D) Rent2

4. (Figure: Rent Controls) Use Figure: Rent Controls. If rent controls are set at Rent0,
renters would be willing to pay a price at least as high as:
A) Rent4 for Q0 units.

Page 1
B) Rent4 for Q1 units.
C) Rent3 for Q1 units.
D) No one would be willing to pay a higher actual price than Rent0.

5. (Figure: Rent Controls) Use Figure: Rent Controls. Without rent controls, the
equilibrium rent is:
A) Rent4.
B) Rent1.
C) Rent2.
D) Rent3.

6. (Figure: Rent Controls) Use Figure: Rent Controls. If rent controls are imposed and the
government wants them to be immediately effective, they will most likely be set at
either _____ or _____.
A) Rent0; Rent1
B) Rent1; Rent3
C) Rent3; Rent4
D) Rent2; Rent4

7. (Figure: Rent Controls) Use Figure: Rent Controls. If rent controls are set at Rent0:
A) the shortage of rental units is the distance Q1–Q3.
B) some renters will be willing to pay a price as high as Rent4 for Q0 units.
C) no one will have to pay a higher actual price than Rent0, nor will anyone be willing
to do so.
D) there will be a surplus of rental units.

8. (Figure: Rent Controls) Use Figure: Rent Controls. If rent controls are set at Rent1:
A) the shortage of rental units is the distance Q3–Q1.
B) some renters will be willing to pay a price as high as Rent4 for Q1 units.
C) no one will have to pay a higher actual price than Rent0, nor will anyone be willing
to do so.
D) there will be a surplus of rental units, but it is impossible to tell how large the
surplus is based on the information provided.

9. (Figure: Rent Controls) Use Figure: Rent Controls. If rent controls are set at Rent3:
A) the shortage of rental units is the distance Q3–Q1.
B) some renters will be willing to pay a price as high as Rent4 for Q3 units.
C) no one will have to pay a higher actual price than Rent0, nor will anyone be willing
to do so.
D) rent will remain at Rent2.

Page 2
 10. (Figure: Rent Controls) Use Figure: Rent Controls. If rent controls are set at Rent1:
A) rental apartments may be of inefficiently low quality.
B) there will be an efficient allocation of rentals.
C) some landlords may break the law by renting below the mandated price.
D) new apartments will be constructed.

11. The market for apples is in equilibrium at a price of $0.50 per kilogram. If the
government imposes a price floor in the market at a price of $0.40 per kilogram:
A) quantity demanded will decrease.
B) quantity supplied will increase.
C) there will be a shortage of apples.
D) the price floor will not affect the market price or output.

12. A binding price ceiling is usually designed to:

A) keep prices below the equilibrium level.
B) increase the quality of the good.
C) prevent shortages.
D) increase efficiency.

13. Rapidly increasing child daycare costs have been a major political concern since well
before 1992. Suppose that the government sets the maximum price for daily child
daycare expenses at $20 per day, but the current market price is $40 per day. What is
MOST likely to happen?
A) More people will try to get access to the lower-cost child daycare, but there will be
fewer daycares with spots available at that price.
B) The same number of people will try to get access to daycare, and the same number
of childcare centres are willing to accept them at that price.
C) More people will have access to daycare, since the price is lower.
D) Fewer people will try to enrol their children in daycare, and fewer daycare centres
will be accepting new children at that price.

14. The government decides to impose a price ceiling on a good because it thinks that the
market-determined price is too high. If the government imposes the price ceiling below
the equilibrium price:
A) consumers will respond to the lower price and wish to purchase more of the good
than at the equilibrium price.
B) producers will respond to the lower price and offer more units for sale.
C) consumers will be able to purchase more of the good after the price ceiling is
imposed.
D) it will not be binding.

Page 3
 15. The government imposes a price ceiling below the equilibrium price. The price ceiling
will cause:
A) demand to decrease.
B) supply to increase.
C) a shortage of the good.
D) an increase in the quality of the good.

16. Suppose that the CFL wants to give the “common fan” the opportunity to attend the
Grey Cup, so it sets Grey Cup prices “low”—let's say that they set ticket prices for a
regular seat at the Grey Cup to cost just $100. People who have tickets, however, can
turn around and sell them online for $1 000 or more. If there are no transaction costs for
fans with tickets to sell them, the true cost to a fan of attending the Grey Cup is:
A) at most $100.
B) at least $1 000.
C) the monetary price paid to obtain the ticket.
D) $900 less than the opportunity cost of a ticket.

17. Rent controls set a price ceiling below the equilibrium price, and therefore:
A) quantity supplied exceeds the quantity demanded.
B) quantity demanded exceeds the quantity supplied.
C) a surplus of rental units will result.
D) all poor people will be helped.

18. A price ceiling will have NO immediate effect if:

A) it is set above the equilibrium price.
B) the equilibrium price is above the price ceiling.
C) it is set below the equilibrium price.
D) it creates a shortage.

Use the following to answer questions 19-23:

Page 4
 19. (Table: The Market for Pop) Use Table: The Market for Pop. If the government does
NOT impose a price control, the price of a can of pop will equal:
A) $0.50.
B) $0.75.
C) $1.00.
D) $1.25.

20. (Table: The Market for Pop) Use Table: The Market for Pop. If the government imposes
a price ceiling of $0.50 per can of pop the quantity of pop demanded will be _____ cans.
A) 10
B) 8
C) 6
D) 4

21. (Table: The Market for Pop) Use Table: The Market for Pop. If the government imposes
a price ceiling of $0.50 per can of pop, there will be:
A) a shortage of two cans.
B) a shortage of three cans.
C) a surplus of three cans.
D) equilibrium in the market for soda.

22. (Table: The Market for Pop) Use Table: The Market for Pop. If the government imposes
a price ceiling of $1 per can of pop, the quantity of pop supplied will be _____ cans.
A) 7
B) 8
C) 9
D) 10

23. (Table: The Market for Pop) Use Table: The Market for Pop. If the government imposes
a price ceiling of $1 per can of pop the quantity of pop demanded will be _____ cans.
A) 10
B) 8
C) 6
D) 4

Page 5
Use the following to answer question 24:

24. (Table: The Market for Banana Muffins) Look at the table The Market for Banana
Muffins. In response to popular anger over the high price of banana muffins and the
extreme wealth of banana muffin producers, the government imposes a price ceiling of
$1.20 per banana muffin. From this table, the price ceiling causes a _____ banana
muffins.
A) shortage of 3 000
B) shortage of 5 000
C) surplus of 8 000
D) surplus of 3 000

Use the following to answer questions 25-27:

25. (Table: Market for Apartments) Use Table: Market for Apartments. If a price ceiling of
$700 is imposed on this market, the result will be an inefficiency in the form of a _____
million apartments.
A) surplus of 0.6
B) shortage of 0.6

Page 6
C) surplus of 0.2
D) shortage of 0.2

26. (Table: Market for Apartments) Use Table: Market for Apartments. If a price ceiling of
$900 is imposed on this market, the result will be an inefficiency in the form of a _____
million apartments.
A) surplus of 0.6
B) shortage of 0.6
C) surplus of 0.2
D) shortage of 0.2

27. (Table: Market for Apartments) Use Table: Market for Apartments. If a government
price ceiling of $600 is imposed on this market, the result will be an inefficiency in the
form of a _____ million apartments.
A) surplus of 0.6
B) surplus of 0.8
C) shortage of 0.8
D) shortage of 0.6

28. Suppose that the Jamaican government sets coffee prices at $1 per kilogram when the
market price is $10 per kilogram. The government's actions will:
A) improve efficiency since the low prices will force producers to find cheaper
production methods.
B) result in coffee surpluses, even in a coffee-rich country.
C) cause coffee shortages, even in a coffee-rich country.
D) improve equality between rich and poor since the poor can now afford coffee.

29. Suppose that the average cost of a visit to the dentist is $100. If the government imposes
a price ceiling of $50 on the cost of a dental visit, there will be:
A) an excess supply of dental visits.
B) an excess demand for dental visits.
C) an increase in the equilibrium number of dental visits.
D) no change in the number of dental visits.

30. The most likely reason that the government implements a price _____ is because it feels
the price is too high for _____.
A) ceiling; consumers
B) floor; consumers
C) ceiling; producers
D) floor; producers

Page 7
 31. The government decides to impose a price ceiling on a good because it thinks that the
market-determined price is too high. If it imposes the price ceiling above the
equilibrium price:
A) consumers will respond to the higher price and therefore wish to purchase less of
the good than at the equilibrium price.
B) producers will respond to the higher price and therefore offer fewer units for sale.
C) consumers will purchase less of the good after the price ceiling is imposed.
D) neither producers nor consumers will change their behaviour.

32. The market for apples is in equilibrium at a price of $0.50 per kilogram. If the
government imposes a price ceiling in the market at $0.40 per kilogram:
A) quantity demanded will decrease.
B) quantity supplied will increase.
C) there will be a shortage of the good.
D) the price ceiling will not affect the market price or output.

33. To be binding, a price ceiling must be set at a price _____ the equilibrium price.
A) lower than
B) higher than
C) the same as
D) Any price ceiling is binding.

34. A maximum price set below the equilibrium price is a:

A) demand price.
B) supply price.
C) price floor.
D) price ceiling.

35. A price ceiling is:

A) a maximum price sellers are allowed to charge for a good or service.
B) the difference between the quantity supplied and quantity demanded.
C) a minimum price buyers are required to pay for a good or service.
D) the deadweight loss caused by an inefficiently low quantity.

Page 8
Use the following to answer question 36:

36. (Figure: Price Control) Use Figure: Price Control. One effective price ceiling would be
the price indicated at point _____, and there would be a _____ equal to the difference
between points _____.
A) b; surplus; f and e
B) b; shortage; f and e
C) d; shortage; i and h
D) d; surplus; e and h

37. The dictator of a small country restricts the price of cars to an amount less than or equal
to $1 200 (a price below the equilibrium price for cars). Such a policy would set a:
A) price floor.
B) price ceiling.
C) quota.
D) tariff.

38. A student organization forms on your university campus to protest the high rent for
apartments near campus. This organization is planning a meeting with the dean and the
president of the university. Which choice BEST describes one policy the student
organization might fight for?
A) a laissez-faire policy
B) a price floor
C) a price ceiling
D) a quantity control

39. Hugo Chávez was the president of Venezuela. Venezuela is a major producer of oil

Page 9
 products, which remain a critical component of Venezuela's economy. Suppose that
President Chávez wanted to increase his popularity with the citizens of Venezuela and
enacted a government policy to reduce the price of gasoline sold at state-owned gas
stations to 50% of the previous price. This policy is called a:
A) laissez-faire policy.
B) price floor.
C) price ceiling.
D) quota.

40. Hugo Chávez was the president of Venezuela. Venezuela is a major producer of oil
products, which remain a critical component of Venezuela's economy. Suppose that
President Chávez wanted to increase his popularity with the citizens of Venezuela and
enacted a government policy to reduce the price of gasoline sold at state-owned gas
stations to 50% of the previous price. Assuming a downward-sloping demand curve for
gasoline, in theory, this policy would result in a quantity of gasoline demanded that is
_____ the quantity of gasoline supplied.
A) equal to
B) greater than
C) less than
D) greater than or equal to

Use the following to answer question 41:

41. (Figure: The Market for Hybrid Cars) Use Figure: The Market for Hybrid Cars. If there
were a binding price ceiling in the market for hybrid cars, one possible price would be
equal to _____, consumers would demand _____, and producers would supply _____.

Page 10
 A) P1; Q1; Q3
B) P2; Q2; Q2
C) P1; Q3; Q1
D) P3; Q3; Q1

Use the following to answer questions 42-43:

42. (Figure: The Market for Economics Textbooks) Use Figure: The Market for Economics
Textbooks. Suppose that the government believes textbooks are too expensive and it
wants to make sure textbooks are affordable to more students. This type of price control
is called a price _____, and one possible binding price control would be _____.
A) floor; $100
B) floor; $40
C) ceiling; $40
D) ceiling; $100

43. (Figure: The Market for Economics Textbooks) Use Figure: The Market for Economics
Textbooks. At a price ceiling of $40, the market outcome would be a _____ of _____

Page 11
 textbooks.
A) surplus; 30
B) surplus; 10
C) shortage; 30
D) shortage; 10

44. When price controls take the form of maximum prices set below the equilibrium price,
they are:
A) illegal.
B) equal to the demand price.
C) price floors.
D) price ceilings.

45. A maximum price legislated by the government is called:

A) a price support.
B) a price floor.
C) a price ceiling.
D) the parity price.

46. A persistent shortage may occur if:

A) the government imposes a price ceiling below the equilibrium price.
B) the government imposes a price floor below the equilibrium price.
C) demand keeps falling.
D) supply shifts rightward.

47. If the government sets out to help low-income people by establishing a maximum
amount that can be paid for rent:
A) a price floor has been set, and a shortage of rental units may occur.
B) a price ceiling has been set, and a shortage of rental units may occur.
C) in the long run, more rental units will appear.
D) the quality of rental units will be inefficiently high.

48. Rent controls usually set a price ceiling below the equilibrium price, and therefore:
A) quantity supplied exceeds the quantity demanded.
B) quantity demanded exceeds the quantity supplied.
C) a surplus of rental units will result.
D) all low-income recipients will clearly be helped.

49. A price ceiling will not have an immediate effect if:

A) it is set above the equilibrium price.

Page 12
 B) the equilibrium price is above the price ceiling.
C) it is set below the equilibrium price.
D) it creates a shortage.

Use the following to answer question 50:

50. (Table: Market for Butter) Use Table: Market for Butter. If the government imposes a
price ceiling of $0.90 per kilogram of butter, the quantity of butter actually purchased
will be _____ million kilograms.
A) 10.5
B) 9.0
C) 1.5
D) 10.0

Use the following to answer questions 51-53:

51. (Figure: Supply and Demand) Use Figure: Supply and Demand. A price ceiling of P1
causes:
A) a shortage equal to the distance AB.
B) a surplus equal to the distance AB.
C) a shortage equal to the distance DE.

Page 13
D) no change to the market.

52. (Figure: Supply and Demand) Use Figure: Supply and Demand. A price ceiling of P3
causes:
A) a shortage equal to the distance AB.
B) a surplus equal to the distance AB.
C) a shortage equal to the distance DE.
D) no change to the market.

53. (Figure: Supply and Demand) Use Figure: Supply and Demand. A binding price ceiling
is represented by:
A) the price P1.
B) the price P2.
C) the price P3.
D) point C.

54. The Montreal Symphony Orchestra wants to make sure that its concerts are affordable
for all residents of Montreal and therefore prices all of its tickets at $25. However,
outside Place des Arts (the concert hall where they play), people can sell the same
tickets for $75 or more. The true cost to the concert-goer of a ticket to the symphony is
at least:
A) $25.
B) $50.
C) $75.
D) $100.

55. Producers will sometimes lower the quality of a good when the government imposes:
A) any price control.
B) an excise tax.
C) a binding price floor.
D) a binding price ceiling.

56. If the government imposes binding rent control:

A) rent will be set above the equilibrium price.
B) it may result in some landlords leaving the business because they cannot cover
costs.
C) it will lead to rental units being higher in quality because landlords are guaranteed
a high price.
D) it will cause a surplus of housing.

Page 14
 57. Price ceilings will impose costs on society because they:
A) will eliminate long waiting lines.
B) may result in black markets, where prices are lower than the market-determined
price would be.
C) lead to a smaller quantity offered on the market.
D) help businesses instead of consumers.

58. By definition, in a black market, goods or services are bought and sold:
A) at night.
B) without any information about quality.
C) without any information about price.
D) illegally.

59. When a tenant in a rent-controlled apartment sublets the apartment to another renter at a
rent higher than the price ceiling:
A) it is inefficient.
B) the transaction takes place on a black market.
C) there is an increase in quantity demanded.
D) there is a decrease in quantity demanded.

60. Black markets may develop as a result of price controls because:

A) price controls increase efficiency.
B) quantity demanded equals quantity supplied at the mandated price.
C) price controls offer subsidies for market transactions.
D) individuals can profit by illegal exchanges.

61. Which example would be considered a black market transaction?

A) a tenant in a rent-controlled apartment subletting at a higher rent
B) the purchase of an inferior radio at a department store
C) waiting in line during the gasoline shortages of the 1970s
D) the oil market

62. In a(n) _____ market, goods or services are bought and sold illegally.
A) black
B) uncontrolled
C) unregulated
D) unproductive

63. One of the ways rent control is inefficient is that it leads to:
A) higher-quality apartments.

Page 15
B) high opportunity costs associated with wasted time searching for apartments.
C) markets that maximize total surplus.
D) the construction of more apartments.

64. Rent controls in New York City do NOT cause:

A) inefficiently low-quality apartments.
B) wasted resources resulting from the opportunity cost of time associated with trying
to find an apartment.
C) black markets.
D) an increase in the quantity supplied of rent-controlled apartments.

65. Price controls encourage black markets because:

A) they eliminate opportunity costs.
B) individuals can profit by illegal exchanges.
C) they create too much efficiency.
D) they create too much equity.

66. Suppose that the government of the oil-rich country Saudi Arabia sets gasoline prices at
$0.25 per litre when the market price is $1.50. The Saudi government's actions will:
A) improve efficiency since the low prices will force producers to find cheaper
production methods.
B) result in gasoline surpluses even in an oil-rich country.
C) cause gasoline shortages even in an oil-rich country.
D) necessarily improve equality between rich and poor since the poor can now afford
gasoline.

67. A price ceiling below the equilibrium price is likely to result in a persistent _____, a
transfer of surplus from _____, and _____ deadweight loss.
A) surplus; producers to some consumers; some
B) shortage; producers to some consumers; some
C) shortage; some consumers to producers; no
D) surplus; some consumers to producers; some

68. A binding rent-control price ceiling does NOT result in:

A) inefficiently low transaction costs.
B) wasted resources of consumers caused by time spent searching for the good.
C) inefficient allocation of the good to consumers.
D) inefficiently high quality of the good being sold.

69. Which inefficiency is NOT caused by binding price ceilings?

Page 16
 A) inefficient allocation to consumers
B) wasted resources
C) potential illegal activity
D) inefficient allocation of sales among sellers

70. Economists in general agree that rent controls are:

A) an efficient and equitable way to help low-income families.
B) an inefficient but sometimes effective way to help low-income families.
C) an efficient method of dealing with the shortages caused by price ceilings.
D) the only way to solve the problem of poverty.

71. Governments continue to impose price controls. Which statement is NOT a valid reason
for this?
A) Some people do benefit from such price controls.
B) People fear that prices will change dramatically if the price controls are removed.
C) It is politically expedient to enact regulations that benefit influential voting groups.
D) Price controls are always effective.

Use the following to answer question 72:

72. (Table: The Market for Pop) Use Table: The Market for Pop. If the government imposes
a price floor of $1 per can of pop, there will be:
A) a shortage of two cans.
B) a shortage of three cans.
C) a surplus of three cans.
D) equilibrium in the market for soda.

73. Suppose that Canadian sheep farmers are very upset about the subsidies the UK
government pays to British sheep farmers. One reason for this could be that subsidized
wool from the United Kingdom:
A) leads to wool surpluses in the United Kingdom and lower prices for Canadian

Page 17
 farmers on world markets.
B) raises the world price of wool.
C) has led to a global shortage of wool.
D) has led to an increase in the demand for Canadian wool.

74. Suppose that Canada and the European Union impose price floors on many similar
agricultural products. These price floors lead to unwanted surpluses. To deal with a
surplus:
A) the Canadian government typically pays farmers to produce as much as possible.
B) the Canadian government in some cases has destroyed the surplus production.
C) the European Union pays farm exporters to sell products for a profit overseas.
D) the Canadian government holds auctions to sell the surplus to the highest bidder.

Use the following to answer question 75:

75. (Table: Market for Butter) Use Figure: Market for Butter. If the government imposes a
price floor of $0.90 per kilogram of butter, the quantity of butter actually purchased will
be _____ million kilograms.
A) 10.5
B) 9.0
C) 1.5
D) 10.0

76. Suppose that the government sets a price floor of $2.85 per kilogram on corn when the
current price is $2.55. This price floor will:
A) cause a surplus of corn.
B) cause a shortage of corn.
C) have no immediate effect on the price of corn.
D) increase the supply of corn.

Page 18
Use the following to answer question 77:

77. (Figure: Supply and Demand) Use Figure: Supply and Demand. A binding price floor is
represented by:
A) P1.
B) P2.
C) P3.
D) point C.

78. All else equal, if a price floor above the equilibrium is imposed on a market and the
government buys the surplus, consumer surplus will _____ and producer surplus will
_____.
A) fall; rise
B) fall; fall
C) rise; fall
D) rise; rise

Page 19
Use the following to answer questions 79-81:

Figure: The Market for Butter

79. (Figure: The Market for Butter) Use Figure: The Market for Butter. If a government
price floor of $1.30 is imposed on this market, an inefficiency will result in the form of a
_____ of _____ million kilograms of butter.
A) surplus; 4.5
B) surplus; 6.0
C) shortage; 6.0
D) shortage; 4.5

80. (Figure: The Market for Butter) Use Figure: The Market for Butter. If a government
price floor of $1.20 is imposed on this market, an inefficiency will result in the form of a
_____ of _____ million kilograms of butter.
A) surplus; 4.5
B) shortage; 4.5
C) surplus; 1.5
D) shortage; 1.5

81. (Figure: The Market for Butter) Use Figure: The Market for Butter. If a government
price floor of $1.10 is imposed on this market, an inefficiency will result in the form of a
_____ of _____ million kilograms of butter.

Page 20
A) surplus; 4.5
B) shortage; 4.5
C) surplus; 3
D) shortage; 1.5

82. Which statement is a reason for governments imposing or maintaining price controls?
A) Some consumers and producers can benefit from price controls.
B) Price controls prevent the deadweight loss that occurs when the market is in
equilibrium.
C) The government earns revenue from price controls.
D) Price controls improve the efficiency of the market.

83. The most likely reason that the government would implement a _____ is because it feels
that the price is too low for _____.
A) price ceiling; consumers
B) price floor; consumers
C) price ceiling; producers
D) price floor; producers

84. To be binding, a price floor must be set:

A) lower than the equilibrium price.
B) higher than the equilibrium price.
C) so that quantity demanded exceeds quantity supplied.
D) lower than the equilibrium price, so that quantity demanded exceeds quantity
supplied.

85. When the minimum wage increases, which outcome is MOST likely?
A) Unemployment among skilled workers decreases.
B) Fewer workers are willing to work off the books.
C) Skilled workers will outnumber unskilled workers.
D) Unemployment among unskilled workers increases.

86. Farmers in developing countries want Canada to reduce the subsidies that it gives to
Canadian farmers because subsidized agricultural products from Canada:
A) lead to agricultural surpluses and lower prices for farmers in developing countries.
B) raise the world price of agricultural products.
C) have led to a global shortage of agricultural products.
D) have led to an increase in the demand for agricultural products from the developing
world.

Page 21
 87. When the government removes a binding price floor:
A) quantity demanded will decrease and quantity supplied will increase.
B) quantity demanded will increase and quantity supplied will decrease.
C) excess demand will develop.
D) excess supply will develop.

88. A minimum price set above the equilibrium price is a:

A) demand price.
B) supply price.
C) binding price floor.
D) binding price ceiling.

89. Suppose that the government sets a price floor below the current price of a good. This
price floor will:
A) result in an excess supply of the good.
B) result in an excess demand for the good.
C) have no immediate effect on the price of the good.
D) increase the quantity supplied of the good.

Use the following to answer question 90:

Figure: The Shrimp Market

Page 22
 90. (Figure: The Shrimp Market) Use Figure: The Shrimp Market. If the government wants
to limit shrimp sales to 500 kilograms, it can impose a price:
A) floor of $20.
B) floor of $10.
C) ceiling of $5.
D) floor of $15.

91. Which example would be considered a price floor?

A) a rent-controlled apartment
B) a maximum legal price that could be charged for gasoline during a time of war
C) the minimum wage
D) a government decree that capped the price of bottled water in the aftermath of a
devastating hurricane

92. The likely result of a binding price floor is a _____ of the good at a price _____ the
equilibrium price.
A) surplus; above
B) shortage; below
C) surplus; below
D) shortage; above

93. If the minimum wage is a binding price floor:

A) those who want to work will outnumber the jobs available.
B) the market-clearing equilibrium wage will increase.
C) there will be a job for everyone who is willing to work.
D) business owners will hire more workers.

Page 23
Use the following to answer question 94:

94. (Figure: The Market for English Textbooks) Use Figure: The Market for English
Textbooks. With a binding price floor at $90, the market outcome would be a _____ of
_____ textbooks.
A) surplus; 45
B) surplus; 30
C) shortage; 45
D) shortage; 30

Page 24
Use the following to answer question 95:

95. (Figure: The Market for Milk) Use Figure: The Market for Milk. With a binding price
floor, the price could be equal to _____, consumers would demand _____, and
producers would supply _____.
A) P1; Q1; Q3
B) P2; Q2; Q2
C) P1; Q3; Q1
D) P3; Q3; Q1

Page 25
Use the following to answer question 96:

96. (Figure: The Market for Tortillas) Use Figure: The Market for Tortillas. With a
nonbinding price floor, the price could be equal to _____, consumers would demand
_____, and producers would supply _____.
A) P1; Q1; Q3
B) P2; Q2; Q2
C) P1; Q3; Q1
D) P3; Q2; Q1

Page 26
Use the following to answer question 97:

97. (Figure: The Market for Spanish Textbooks) Use Figure: The Market for Spanish
Textbooks. Suppose that the government believes the producers of Spanish textbooks
are not profitable, and it wants to make sure textbook producers are profitable. It could
impose a control called a price _____, and for it to be binding, one possible price would
be _____.
A) floor; $90
B) floor; $40
C) ceiling; $40
D) ceiling; $90

98. A binding price floor is a _____ price set _____ the equilibrium price.
A) minimum; at
B) maximum; below
C) minimum; above
D) maximum; above

Page 27
 99. A binding price floor in the market for wheat:
A) increases the price paid by consumers.
B) decreases the price paid by consumers.
C) decreases the price received by farmers.
D) does not change the price received by farmers.

100. A minimum price that the government guarantees farmers will receive for a particular
crop is a(n):
A) price ceiling.
B) price floor (or price support).
C) deficiency price.
D) export subsidy.

Use the following to answer questions 101-102:

101. (Figure: Supply and Demand in Agriculture) Use Figure: Supply and Demand in
Agriculture. The government could help increase some farmers' income by setting a
price _____ at _____, causing a _____ of _____.
A) floor; P4; surplus; Q3–Q0
B) floor; P2; surplus; Q2–Q0
C) ceiling; P4; surplus; Q2–Q1
D) floor; P1; shortage; Q3–Q0

Page 28
 102. (Figure: Supply and Demand in Agriculture) Use Figure: Supply and Demand in
Agriculture. If a price floor at P4 is set to help improve farm incomes and the
government wants to assure farmers that their output will be purchased, the government
must purchase an amount of output equal to:
A) Q3–Q0.
B) Q3–Q1.
C) Q2–Q1.
D) Q1–Q3.

103. An agricultural market price support policy establishes a binding price floor, which:
A) decreases the price paid by consumers.
B) does not change the price paid by consumers.
C) increases the price received by farmers.
D) decreases the price received by farmers.

Use the following to answer questions 104-106:

104. (Figure: Price Controls) Use Figure: Price Controls. An effective price floor would be at
price _____ and a _____ would result from the difference between points _____.
A) c; surplus; f and e
B) b; surplus; f and e
C) d; shortage; i and h
D) b; shortage; f and e

105. (Figure: Price Controls) Use Figure: Price Controls. The consumer surplus lost to a price

Page 29
 floor at point b is equal to the area:
A) abe.
B) egh.
C) bcge.
D) bcke.

106. (Figure: Price Controls) Use Figure: Price Controls. A price floor has been set at point
b. The area of deadweight loss that results from this price floor is:
A) egh.
B) ghi.
C) fgi.
D) efg.

107. The persistent unwanted surplus that results from a binding price floor causes
inefficiencies that do NOT include:
A) inefficiently low quality.
B) inefficient allocation of sales among sellers.
C) wasted resources.
D) the temptation to break the law by selling below the legal price.

108. A binding price floor causes:

A) a shortage in the market.
B) a surplus in the market.
C) an efficient use of resources.
D) equilibrium.

109. Suppose that a binding price floor is in place in a particular market. If the market is
deregulated and the price floor is removed:
A) the quantity demanded will decrease.
B) excess demand will develop.
C) the quality of the good supplied will likely decrease.
D) quantity supplied will increase.

110. One of the consequences of the minimum wage has been:

A) decreased unemployment for low-skill workers.
B) workers offering to work off the books for less than the minimum wage.
C) lower production costs for small businesses.
D) increased employment for high-skill workers.

111. Price controls:

Page 30
A) always increase economic efficiency.
B) always lead to more equitable results.
C) can result in inequitable outcomes.
D) are always set below the equilibrium price.

112. Producers may supply a good with inefficiently high quality if the government imposes
a:
A) price ceiling set above the equilibrium price.
B) price floor set below the equilibrium price.
C) binding price floor.
D) binding price ceiling.

113. In Europe, the minimum wage has led to:

A) lower unemployment, especially among young workers.
B) a proliferation of large companies in Italy.
C) widespread evasion of the minimum wage law in the black market for labour.
D) European governments hiring the surplus of workers.

114. A binding price floor is likely to cause deadweight loss because:

A) buyers incur additional search costs looking for the scarce good.
B) the quantity of the good transacted is less than the equilibrium quantity transacted.
C) a black market emerges and the good sells at prices above the price floor.
D) some buyers who want to buy at the controlled price are unable to find a seller
willing to sell at that price.

115. Which inefficiency is NOT caused by price floors?

A) inefficiently low quality
B) inefficient allocation of sales among sellers
C) wasted resources
D) illegal activity

Page 31
Use the following to answer questions 116-117:

116. (Figure: The Market for Hybrid Cars) Use Figure: The Market for Hybrid Cars. What
area represents consumer surplus if there is a binding price floor at P1?
A) a
B) a+b
C) a+b+c
D) a+b+d

117. (Figure: The Market for Hybrid Cars) Use Figure: The Market for Hybrid Cars. What
area represents deadweight loss if there is a binding price floor at P1?
A) a+b+c
B) b+c+d+e
C) c+e
D) c

118. The system of a special numbered plate that must be affixed to the taxicab in Toronto is
an example of a:
A) price subsidy.
B) nonbinding price ceiling.
C) price floor.
D) quantity control.

119. When the government policy is to regulate the quantity of a good that can be bought and
sold rather than the price at which it is transacted, it uses a:

Page 32
A) quota.
B) price control.
C) price ceiling.
D) price floor.

120. In economic markets, a quota is a(n):

A) lower limit on quantity.
B) upper limit on quantity.
C) maximum price.
D) minimum price.

121. The total amount of a good that can be transacted under a quantity control is called the:
A) ceiling price.
B) demand price.
C) quota limit.
D) supply price.

122. Which example is a quantity control?

A) the Canadian Child Tax Benefit (CCTB) monthly payments
B) the minimum wage
C) unemployment insurance
D) limits on the number of salmon that can be caught in the Gaspe region of Quebec

123. In 1998, the city of Toronto decided to introduce a new class of taxi licence with the sale
of 1 400 new Ambassador Taxi licences. Unlike a standard licence, Ambassador
Licences can't be sold, leased, or otherwise transferred, and the licence remains the
property of the city. The aim was to allow these drivers to be entrepreneurs
who__________
A) limit the number of taxi rides during rush hour.
B) cared about the quality of their car.
C) give the owner the right to be part-time UBER drivers.
D) encourage citizens to buy their own cars.

124. Typically, the government limits the quantity of a good that can be bought and sold by:
A) licensing the suppliers.
B) setting a price floor below the equilibrium price.
C) maintaining the equilibrium price regardless of changes in demand and supply.
D) setting a price ceiling above the equilibrium price.

125. Which example is a quota?

Page 33
A) rent controls in Toronto
B) property taxes on beachfront property in Vancouver
C) limits on the number of salmon that can be caught in British Colombia
D) the maximum reimbursement that insurance will pay for a dental procedure

126. The amount that consumers are willing to pay for the quota limit quantity is the:
A) demand price.
B) supply price.
C) quota rent.
D) price ceiling.

127. The amount for which suppliers are willing to supply the quota limit quantity is the:
A) demand price.
B) supply price.
C) quota rent.
D) price floor.

128. The difference between the demand price and the supply price at the quota limit amount
is the:
A) demand price.
B) supply price.
C) quota rent.
D) price floor.

129. When the government imposes a quota on sales of a good or service, it usually licenses
the right to sell a given quantity of the good. The market price of the licence is equal to
the:
A) demand price of the good.
B) wedge that represents the difference between the demand price and the supply
price.
C) supply price of the good.
D) equilibrium price of the good.

130. If New York City had no medallion system for taxicabs, assuming that the supply curve
of taxicab rides is upward sloping and the demand curve for taxicab rides is downward
sloping, economic theory would predict that the price of a taxicab ride would:
A) increase because of the higher safety hazards.
B) not change from its current level.
C) decrease.
D) increase, but only slightly.

Page 34
 131. Suppose that the Canadian government imposes a binding quota on the number of
Japanese-made cars allowed into Canada. Assuming that Japanese-made cars and
Canadian-made cars are substitutes in consumption, we would expect the price of
Japanese cars to _____ and the price of Canadian-made cars to _____.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

132. The quota rent is the:

A) difference between the demand price and the supply price at the quota limit.
B) rent received by landlords who own rent-controlled apartments.
C) opportunity cost of using a quota-controlled service or of buying a good that is
subject to an import quota.
D) minimum rent that the owner of a building must receive before he or she is willing
to rent out the building.

Use the following to answer question 133:

Figure: The Market for Clams

133. (Figure: The Market for Clams) Use Figure: The Market for Clams. The government
imposes a quota limiting sales of clams to 1 000 kilograms. According to the figure, the
quota rent per kilogram in this case is:
A) $7.50.

Page 35
 B) $5.00.
C) $2.50.
D) The quota rent cannot be determined from the information provided.

Use the following to answer questions 134-135:

134. (Table: Market for Banana Muffins) Use Table: Market for Banana Muffins. Suppose
that the government decides to reduce banana muffin consumption as part of a war on
obesity. After careful study, the government decides to impose a quota of 5 000 on
production of banana muffins this year. What price will producers charge if they obey
the quota law?
A) $1.20
B) $1.30
C) $1.50
D) The answer cannot be determined with this information.

135. (Table: Market for Banana Muffins) Use Table: Market for Banana Muffins. If the
government imposes a quota of 5 000 on the banana muffin market, the quota rent per
banana muffin will be:
A) $1.20.
B) $0.30.
C) $1.50.
D) $1.00.

Page 36
Use the following to answer questions 136-138:

Table: The Market for Taxi Rides

136. (Table: The Market for Taxi Rides) Use Table: The Market for Taxi Rides. If a
government quota limit at 6 million rides is imposed, the quota rent accruing to the
owner of a taxi licence will be _____ per ride, but there will be a total missed
opportunity (inefficiency) to consumers and producers of _____ million rides.
A) $1; 1
B) $2; 2
C) $3; 3
D) $4; 4

137. (Table: The Market for Taxi Rides) Use Table: The Market for Taxi Rides. If a
government quota limit at 9 million rides is imposed, the quota rent that will accrue to
the owner of a taxi licence will be _____ per ride, but there will be a total missed
opportunity (inefficiency) to consumers and producers of _____ million rides.
A) $1; 1
B) $2; 2
C) $3; 3
D) $4; 4

138. (Table: The Market for Taxi Rides) Use Table: The Market for Taxi Rides. If a
government quota limit at 7 million rides is imposed on this market, the quota rent that
will accrue to the owner of a taxi licence will be _____ per ride, but there will be a total
missed opportunity (inefficiency) to consumers and producers of _____ million rides.
A) $1; 1
B) $2; 2
C) $3; 3
D) $4; 4

Page 37
 139. If the government imposes a limit on sales of a good or service by licensing the right to
sell a given quantity of the good, the difference between the demand and supply price is:
A) the quota rent.
B) the equilibrium price.
C) the quota price.
D) deadweight loss.

140. The difference between the demand price and the supply price at the quota limit is:
A) the quota rent.
B) the rent received by landlords who own rent-controlled apartments.
C) the opportunity cost of using or buying a good, subject to an import quota.
D) usually large enough to cause a surplus.

141. Assuming that Canadian and French wines are substitutes in consumption, if the
Canadian government imposes a quota on the amount of French wine allowed into
Canada and the quota is set at a quantity below equilibrium, the price of French wine in
Canada will _____ while the price of the Canadian-produced wine will _____.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

142. The upper limit on the quantity of a good that can be bought and sold is the:
A) quota limit.
B) price ceiling.
C) price floor.
D) tariff.

143. Quota limits that are less than the market equilibrium quantity cause:
A) the demand price to be above the supply price.
B) the quantity demanded to be more than the quantity supplied.
C) the quantity demanded to be less than the quantity supplied.
D) the demand price to be equal to the supply price.

144. Suppose that Canada removes its sugar quotas and the market price of sugar drops.
Since sugar is an input in candy, in the candy bar market, we would expect consumer
surplus to:
A) increase.
B) decrease.

Page 38
C) not change.
D) Consumer surplus cannot be determined without information about the size of the
quota.

145. Which statement about the undesirable side effects of a quantity control is NOT correct?
A) Quantity controls do not lead to deadweight loss.
B) Some mutually beneficial transactions do not occur because of quantity controls.
C) Quantity controls provide incentives for illegal activities.
D) Quantity controls cause a wedge between the demand price and supply price.

146. If a quota is set above the equilibrium quantity, there will be:
A) incentives for illegal activities.
B) missed opportunities in the form of mutually beneficial transactions that don't
occur.
C) a supply price for the quantity transacted that exceeds the demand price of the
quantity transacted.
D) no immediate effect.

147. Quantity controls set below the equilibrium quantity do NOT cause:
A) incentives for illegal activities.
B) missed opportunities in the form of mutually beneficial transactions that don't
occur.
C) the supply price of the quantity transacted to exceed the demand price of the
quantity transacted.
D) quota rents.

Page 39
Use the following to answer question 148:

148. (Figure: Quantity Controls) Use Figure: Quantity Controls. If the government decides to
restrict the quantity sold to 100, which statement is FALSE?
A) Total surplus will fall by areas C and E.
B) The market is not at the free-market equilibrium.
C) Consumer surplus is maximized.
D) Some mutually beneficial transactions have been eliminated.

Use the following to answer questions 149-150:

Figure: The Market for Sandwiches

149. (Figure: The Market for Sandwiches) Use Figure: The Market for Sandwiches. How
much total surplus would be lost if there were a quota of eight sandwiches that could be

Page 40
 legally exchanged?
A) $3
B) $24
C) $27
D) $30

150. (Figure: The Market for Sandwiches) Use Figure: The Market for Sandwiches. Suppose
that a price floor is set at $7. At this price, consumer surplus is equal to _____ and
producer surplus is equal to _____.
A) $64; $40
B) $64; $24
C) $32; $24
D) $32; $40

151. A binding price ceiling will cause a persistent _____, and a binding price floor will
cause a persistent _____.
A) surplus; surplus
B) shortage; surplus
C) shortage; shortage
D) surplus; shortage

Page 41
Use the following to answer questions 152-155:

Figure: The Shrimp Market

152. (Figure: The Shrimp Market) Use Figure: The Shrimp Market. If the government
imposes a quota limiting sales of shrimp to 500 kilograms, the quota rent per kilogram
is:
A) $15.
B) $10.
C) $5.
D) The quota rent cannot be determined from the information provided.

153. (Figure: The Shrimp Market) Use Figure: The Shrimp Market. If the government
imposes a quota limiting sales of shrimp to 250 kilograms, the quota rent per kilogram
is:
A) $17.50.
B) $10.
C) $7.50.
D) $0.

154. (Figure: The Shrimp Market) Use Figure: The Shrimp Market. If the government
imposes a quota limiting sales of shrimp to 1 000 kilograms, the quota rent per kilogram
is:

Page 42
A) $15.
B) $10.
C) $5.
D) $0.

155. (Figure: The Shrimp Market) Use Figure: The Shrimp Market. If the government
imposes a quota limiting sales of shrimp to 250 kilograms, it will have the same effect
on transactions as a price floor of:
A) $17.50.
B) $10.
C) $7.50.
D) The answer cannot be determined from the information provided.

156. The market for salmon is in equilibrium. A binding price ceiling, a binding price floor,
and a quota limit below the market equilibrium in this market would all cause:
A) deadweight loss arising from a quantity exchanged that is less than the equilibrium
quantity.
B) a supply price that exceeds a demand price.
C) revenue collected by the government on each unit of salmon harvested.
D) deadweight loss arising from a transfer of surplus from consumers to producers.

157. Price controls are always set below the market equilibrium price.
A) True.
B) False.

158. Suppose that the federal government imposes a price ceiling of $5 per ATM transaction.
If the average market-clearing price for an ATM transaction is $2, the price ceiling will
not be binding in this instance.
A) True.
B) False.

159. A rent ceiling must be set above the equilibrium rent to be binding.
A) True.
B) False.

160. A price ceiling benefits all consumers.

A) True.
B) False.

Page 43
 161. Critics of the pharmaceutical industry often argue that price ceilings should be imposed
on drug manufacturers. If this happened, the quality of drugs would improve.
A) True.
B) False.

162. Suppose that the province of Ontario sets a price floor in the market for peaches. If the
floor is set below the market-clearing price of peaches, the floor will cause a surplus of
peaches.
A) True.
B) False.

163. To dispose of the unwanted surplus resulting from agricultural price floors, the
European Union pays exporters to sell products at a loss overseas.
A) True.
B) False.

164. Economic models predict that a binding minimum wage will generally cause increased
unemployment for low-skilled workers.
A) True.
B) False

165. If the province of Quebec established a price floor in the market for pumpkins that was
double the current market-clearing price, this would lead to an inefficient number of
pumpkins sold in Quebec.
A) True.
B) False.

166. When transatlantic airfares were set artificially high by an international treaty, airlines
offered customers an inefficiently high quality of service.
A) True.
B) False.

167. Licences allowing taxis to operate issued by New York City in the 1930s are called
medallions.
A) True.
B) False.

168. In New York City, there are more than 100 000 licensed taxicabs.
A) True.

Page 44
B) False.

169. Although they cost more than $200 000 when they were issued in the 1930s, the New
York taxicab medallions are relatively inexpensive today, selling for around $3 000.
A) True.
B) False.

170. Quantity controls usually take the form of price ceilings or price floors established by
the government.
A) True.
B) False.

171. A limit on the amount of a foreign currency people are allowed to buy is an example of
a quota.
A) True.
B) False.

172. A quota is the minimum amount of some good that can be bought and sold in the
market.
A) True.
B) False.

173. Quotas, price ceilings, and price floors are all types of quantity controls that the
government may impose.
A) True.
B) False.

174. The Canadian Football League does not license quarterbacks. This means that the free
market determines the standards that an aspiring quarterback must achieve.
A) True.
B) False.

175. The demand price of a given quantity of doughnuts is the price at which consumers will
demand that quantity. The supply price for a given quantity is the price at which
doughnut producers will supply that quantity.
A) True.
B) False.

Page 45
 176. The Canadian Medical Association licenses doctors. This licensing has probably led to
lower earnings for doctors over time.
A) True.
B) False.

177. If the demand curve for clams is downward sloping, a quota that is set below the
equilibrium quantity will result in a demand price that is lower than the equilibrium
price.
A) True.
B) False.

178. If the supply curve for clams is upward sloping, a quota that is set below the equilibrium
quantity will result in a supply price that is lower than the equilibrium price.
A) True.
B) False.

179. If the demand curve for clams is downward sloping, a quota that is set below the
equilibrium quantity will decrease the price that consumers pay for clams.
A) True.
B) False.

180. If the demand curve for clams is downward sloping and the supply curve is upward
sloping, a quota that is set above the equilibrium quantity will have no immediate effect
on the market.
A) True.
B) False.

181. If the demand curve for clams is downward sloping and the supply curve is upward
sloping, a quota that is set below the equilibrium quantity will result in a supply price
higher than the demand price.
A) True.
B) False.

182. A quota rent for tuna is the difference between the demand price and the supply price if
a quota limit is imposed in the tuna market.
A) True.
B) False.

183. Theoretically, the quota rent for a New York taxicab owner is equal to the market price

Page 46
 of the licence that allows him to drive the cab.
A) True.
B) False.

184. Deadweight loss is the lost gains associated with transactions that do not occur because
of market intervention, such as a quota.
A) True.
B) False.

185. Quotas are more effective than price controls because, unlike price controls, quotas do
not cause deadweight loss.
A) True.
B) False.

186. The quota rent is the same thing as deadweight loss.

A) True.
B) False.

187. The quota rent is the result of a supply price that is above the demand price.
A) True.
B) False.

188. A quota below the equilibrium quantity in the market for shrimp will cause inefficiency
because mutually beneficial transactions will not occur.
A) True.
B) False.

189. How does an effective price ceiling affect the quantity demanded and the quantity
supplied in a competitive market?

190. Suppose that the market price of wheat is $7 and a price ceiling is set at $9. What is the
impact of this price ceiling?

Page 47
Use the following to answer question 191:

191. (Figure: Price Control) Use Figure: Price Control. A price ceiling has been imposed at
price = d. Identify the areas that correspond to the consumer surplus, producer surplus,
and deadweight loss with this price control. In addition, identify the area representing
lost producer surplus that has been transferred to consumers as a result of this policy.

192. How do binding price ceilings encourage black markets?

193. How does a binding price ceiling cause deadweight loss in the market?

194. How could a minimum wage cause an incentive for illegal hiring practices?

Use the following to answer questions 195-196:

Page 48
 195. (Table: The Market for Hamburger Flippers) Use Table: The Market for Hamburger
Flippers. If the minimum wage in this market is $8, what is the effect on the market?
Who are the winners and losers?

196. (Table: The Market for Hamburger Flippers) Use Table: The Market for Hamburger
Flippers. For hamburger flippers with a minimum wage of $8 per hour, can you imagine
a scenario in which the deadweight loss from the minimum wage is lessened or even
eliminated?

Use the following to answer question 197:

197. (Table: The Market for Salmon) Use Table: The Market for Salmon. The provincial
government has imposed a quota of 6 million kilograms and has licensed commercial
fishing boats to harvest the salmon. When the quota is reached, the season is over. What
is the quota rent per kilogram of salmon when 6 million kilograms is harvested and
sold?

198. How is a quota limit different from or similar to a price control?

199. A price floor or a price ceiling is an example of:

A) a quantity control.
B) a price control.
C) market equilibrium price.
D) a quota.

200. The minimum wage, which sets a lower limit on the wages that workers can earn, is

Page 49
 often above the equilibrium price. The minimum wage is an example of a(n):
A) price floor.
B) price ceiling.
C) quota.
D) equilibrium price.

201. The government might impose a price floor if _____ in a market can make a strong
moral or political argument for _____ prices.
A) consumers; lower
B) producers; lower
C) consumers; higher
D) producers; higher

202. The government might impose a price ceiling if _____ in a market can make a strong
moral or political argument for _____ prices.
A) consumers; lower
B) producers; lower
C) consumers; higher
D) producers; higher

203. A rent-control scheme that sets the maximum allowable rent at a price below the
equilibrium rental price would MOST likely be supported by:
A) people who wish to rent an apartment.
B) people who own rental apartments.
C) both renters and owners.
D) neither renters nor owners.

204. In the rental housing market with price controls, the quantity of rental houses demanded
exceeds the quantity of rental housing supplied. This price control must be a:
A) price ceiling.
B) price floor.
C) quota.
D) quantity control.

205. An effective price ceiling will MOST likely result in:

A) an increase in the price.
B) a decrease in deadweight loss.
C) a decrease in producer surplus.
D) no change in either producer or consumer surplus.

Page 50
 206. A binding price ceiling results in:
A) inefficiency resulting from overproduction of the good.
B) inefficiency because transactions are held below the equilibrium quantity.
C) a decrease in wasted resources, as consumers find such goods more easily.
D) surpluses in the market, which eventually lead to inefficient production costs.

207. A price ceiling on a good often results in:

A) a black market, or underground transactions of the good.
B) a surplus of the product.
C) more communication between buyers and sellers about the appropriate price.
D) a more efficient allocation of the good to buyers.

Use the following to answer question 208:

208. (Table: Quantity Supplied and Quantity Demanded) Use Table: Quantity Supplied and
Quantity Demanded. The government institutes a price floor, and as a result, too many
resources are allocated for the production of the good. Given this, which dollar amount
is a possible value of the price floor in this market?
A) $5
B) $10
C) $15
D) $20

209. An increase in producer surplus would most likely occur if:

A) an effective price floor was imposed.
B) an effective price ceiling was imposed.
C) the market price of the good decreased.
D) no changes occurred in the market.

210. An effective price floor would result in a(n):

A) surplus of the good.
B) shortage of the good.

Page 51
C) quantity control.
D) equilibrium price.

211. If minimum wages are set above the equilibrium wage in the market, then the number of
workers hired will be _____ the number of people who are willing to work at the
prevailing wage.
A) less than
B) greater than
C) equal to
D) less than, greater than, or equal to

212. An effective minimum wage ultimately means that:

A) some unskilled workers have a difficult time finding a job.
B) employers must encourage workers to apply for positions.
C) employers will have difficulty finding enough workers for their positions.
D) workers are generally guaranteed employment.

213. An effective price floor will lead to:

A) quantity demanded being greater than quantity supplied.
B) an excess supply or a surplus.
C) the need for government to produce more of the good.
D) suppliers determining the amount of the good bought and sold in the market.

214. If government decides to control the amount of a good allowed to be transacted in a

market, this will:
A) always result in an increase in efficiency in the market.
B) increase incentives for market participants to engage in black market activities.
C) result in the equilibrium quantity being produced if the quota is binding.
D) lead to more of the good being produced.

215. A quota is a:
A) quantity restriction.
B) price control.
C) form of consumer surplus.
D) means to combat black markets.

216. Quotas often:

A) result in the elimination of incentives to engage in illegal activities.
B) lead to deadweight losses.
C) lead to efficient market outcomes.

Page 52
 D) are necessary to increase the quantity of the goods in the market.

217. Which statement(s) is/are TRUE?

I. Quantity controls set below the market equilibrium quantity drive a wedge between
the demand price and the supply price of the good.
II. The difference between the demand price and the supply price at the quota limit is
consumer surplus.
III. Quantity controls have no undesirable side effects.
A) I only
B) II only
C) II and III
D) I, II, and III

218. Government intervention in the form of binding price floors or binding price ceilings
will:
A) always enhance the efficiency of the market.
B) result in either surpluses or shortages.
C) move the market toward its equilibrium quantity more quickly.
D) often be seen as necessary to decrease the activity of black markets.

219. Inefficient allocations of goods to consumers often result from:

A) price ceilings.
B) producer surpluses.
C) increases in income.
D) market transactions.

Use the following to answer questions 220-222:

220. (Table: Quantity Supplied and Quantity Demanded) Use Table: Quantity Supplied and
Quantity Demanded. A government-imposed price ceiling equal to $5 would result in:
A) the equilibrium quantity being bought and sold in this market.
B) excess demand.

Page 53
 C) excess supply.
D) a surplus occurring in this market.

221. (Table: Quantity Supplied and Quantity Demanded) Use Table: Quantity Supplied and
Quantity Demanded. If a price ceiling of $10 is imposed in this market:
A) the quantity demanded will be greater than the quantity supplied.
B) the quantity supplied will be greater than the quantity demanded.
C) an equilibrium quantity will result.
D) excess supply equal to 25 units will result.

222. (Table: Quantity Supplied and Quantity Demanded) Use Table: Quantity Supplied and
Quantity Demanded. A price floor equal to _____ would produce excess supply in this
market.
A) $5
B) $10
C) $15
D) $20

Use the following to answer questions 223-226:

Figure: Market I

223. (Figure: Market I) Use Figure: Market I. A surplus of the good will result if the price is:
A) $15.
B) $9.
C) $6.
D) $0.

Page 54
 224. (Figure: Market I) Use Figure: Market I. If a price floor of $15 is imposed on this
market and the government chooses to purchase the surplus, the government must buy
_____ units of the good and spend a total amount of _____ on its purchase.
A) 5; $75
B) 10; $150
C) 9; $135
D) 9; $81

225. (Figure: Market I) Use Figure: Market I. A price floor of $5 imposed on this market
would:
A) result in a surplus of the good.
B) have no immediate effect.
C) increase production of this good.
D) increase consumer spending on this good.

226. (Figure: Market I) Use Figure: Market I. A price floor at $15 would result in deadweight
loss of:
A) $9.
B) $10.
C) $20.
D) $40.50.

Page 55
Answer Key

1. B
2. C
3. C
4. A
5. C
6. A
7. B
8. A
9. D
10. A
11. D
12. A
13. A
14. A
15. C
16. B
17. B
18. A
19. B
20. A
21. B
22. B
23. B
24. A
25. B
26. D
27. C
28. C
29. B
30. A
31. D
32. C
33. A
34. D
35. A
36. C
37. B
38. C
39. C
40. B
41. D
42. C
43. C
44. D

Page 56
45. C
46. A
47. B
48. B
49. A
50. B
51. D
52. C
53. C
54. C
55. D
56. B
57. C
58. D
59. B
60. D
61. A
62. A
63. B
64. D
65. B
66. C
67. B
68. D
69. D
70. B
71. D
72. C
73. A
74. B
75. D
76. A
77. A
78. A
79. B
80. A
81. C
82. A
83. D
84. B
85. D
86. A
87. B
88. C
89. C
90. D

Page 57
 91. C
92. A
93. A
94. A
95. A
96. B
97. A
98. C
99. A
100. B
101. A
102. A
103. C
104. B
105. C
106. A
107. A
108. B
109. C
110. B
111. C
112. C
113. C
114. B
115. A
116. A
117. C
118. D
119. A
120. B
121. C
122. D
123. B
124. A
125. C
126. A
127. B
128. C
129. B
130. C
131. A
132. A
133. C
134. C
135. B
136. D

Page 58
137. A
138. C
139. A
140. A
141. A
142. A
143. A
144. A
145. A
146. D
147. C
148. C
149. A
150. D
151. B
152. C
153. B
154. D
155. A
156. A
157. B
158. A
159. B
160. B
161. B
162. B
163. A
164. A
165. A
166. A
167. A
168. B
169. B
170. B
171. A
172. B
173. B
174. A
175. A
176. B
177. B
178. A
179. B
180. A
181. B
182. A

Page 59
183. A
184. A
185. B
186. B
187. B
188. A
189.
190.
191.
192.
193.
194.
195.
196.
197.
198.
199. B
200. A
201. D
202. A
203. A
204. A
205. C
206. B
207. A
208. D
209. A
210. A
211. A
212. A
213. B
214. B
215. A
216. B
217. A
218. B
219. A
220. B
221. A
222. D
223. A
224. B
225. B
226. C

Page 60