Chapter 8

A price ceiling is a maximum price allowed by law. A deadweight loss is the total of lost consumer and producer surplus when not all mutually profitable gains from trade are exploited. Price ceilings create a deadweight loss. A rent control is a price ceiling on rental housing. A price floor is a minimum price allowed by law.

Refer to the nearby figure.

If a price floor is set at P3, there will be: excess supply equal to Q3 Q1. If a price floor is set at $15, there are no wasteful increases in quality, and only low cost sellers remain in the market, producer surplus will: 8 Triangle C + E has area: $4 4 = $8. If a price floor is set at P4, there will be: excess supply. Whether or not a price ceiling placed at price P1 has the potential to make buyers better off depends primarily on: whether area D is bigger than area C. The price ceiling causes consumers to lose area C as deadweight loss, but potentially gain area D from lower prices.

If a price ceiling is set in this market at P3, then the quantity supplied will be: Q2 This price ceiling does not bind, so the equilibrium quantity will prevail. In order to obtain goods in the face of the widespread shortages caused by permanent and universal price controls in the former Soviet Union, people relied on blat. Blat is: personal connections that can be used to obtain favors. A price floor: can lead to wasteful increases in quality. Which of the following is a better response to the problem of affordable housing for the poor than rent controls? housing vouchers When sellers have more customers than goods and cannot profit by raising prices because of price ceilings, they can still profit by: reducing the quality of their goods. In the former Soviet Union, all factory managers: benefited from shortages in their own products but were harmed by shortages in other products.

If a price floor is set at P3, if there are no wasteful increases in quality, and if only low-cost sellers remain in the market, in what case will producer surplus increase? area B bigger than area G In order to obtain goods in the face of the widespread shortages caused by permanent and universal price controls in the former Soviet Union, people sometimes: had to get very lucky. had to use personal connections and favors. had to wait in very long lines. All of these choices are correct. That the minimum wage can cause unemployment is revealed by the rhetorical question: "Why not raise the minimum wage to $100 per hour?" In the former Soviet Union, all factory managers: wanted a shortage in the products that their own factories produced.

If a price floor is set at $15, there are no wasteful increases in quality, and only low cost sellers remain in the market, producer surplus will: not change. In this diagram, area G and area B are the same size, so producer surplus does not change. What will happen to the apartment market in Birmingham if the city government decides to set the price for two-bedroom apartments below the market equilibrium price in an attempt to make apartment living more affordable for local families? Landlords' revenues will fall and fewer families will live in apartments. If the law requires the price of a good to be set below its market equilibrium price, then: there will be a shortage of the good. If the minimum wage did not cause unemployment: raising the minimum wage to $100 would be a great way to alleviate poverty. If price controls were the only way to help the poor, this might be an argument in favor of price controls. However: price controls are never the only way to help the poor. A price floor is a _________ price allowed by law. Minimum

In the former Soviet Union, if you were the manager of a factory that produced radios, you wanted the official price of radios to be: low, so that there would be a shortage and you could buy up radios to trade for favors.

If a price ceiling is set in this market at $5, then the quantity supplied will be: 6 Which of the following describes a way in which housing vouchers are superior to rent controls for providing affordable housing to the poor? Housing vouchers can be targeted to help only the poor rather than helping millionaires.