ECON101 Chapter Notes - Chapter 6: Price Ceiling
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A recent study found that the demand and supply schedules for flying disks are as follows:
Price | Quantity Demanded | Quantity Supplied |
---|---|---|
(Dollars per disk) | (Millions of disks) | (Millions of disks) |
11 | 1 | 15 |
10 | 2 | 12 |
9 | 4 | 9 |
8 | 6 | 6 |
7 | 8 | 3 |
6 | 10 | 1 |
Complete the first row of the following table by indicating the equilibrium price and the equilibrium quantity of flying disks in the absence of any price controls.
Scenario | Market Price | Market Quantity | Binding or Not Binding |
---|---|---|---|
(Dollars per disk) | (Millions of disks) | ||
No Price Control | N/A | ||
Price Floor | |||
Price Ceiling |
Flying disk manufacturers persuade the government that flying disk production improves scientists' understanding of aerodynamics and thus is important for national security. A concerned Congress votes to impose a price floor $2 above the equilibrium price.
Complete the second row of the previous table by indicating the new price and quantity of flying disks when Congress imposes a price floor $2 above the equilibrium price. Then indicate whether the price floor is binding or not binding.
Irate college students march on Washington and demand a reduction in the price of flying disks. An even more concerned Congress votes to repeal the price floor and impose a price ceiling $3 below the former price floor.
Complete the final row of the previous table by indicating the new price and quantity of flying disks when Congress imposes a price ceiling $3 below the former price floor. Then indicate whether the price ceiling is binding or not binding.
QUESTION 16
Positive externalities exist because:
a. |
internal benefits are greater than external benefits. |
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b. |
internal benefits are greater than social benefits. |
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c. |
internal benefits are less than external benefits. |
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d. |
external benefits are greater than social benefits. |
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e. |
internal benefits are less than social benefits. |
QUESTION 17
What is a black market?
a. |
It is an illegal market that emerges when binding price ceilings are in place. |
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b. |
It is an illegal market that emerges when only binding price ceilings and binding price floors are in place. |
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c. |
It is an illegal market that emerges when no price controls are present. |
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d. |
It is an illegal market that emerges when binding and nonbinding price controls are in |
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e. |
It is an illegal market that emerges when binding price floors are in place. |
QUESTION 18
The personal decisions of consumers and firms are based on:
a. |
external costs. |
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b. |
public-good costs. |
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c. |
third-party costs. |
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d. |
internal costs. |
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e. |
social cost. |
QUESTION 19
When the price is _________ the equilibrium price, we would expect there to be a _________, causing the market to put _________ pressure on the price until it went back to the equilibrium price.
a. |
below; shortage; downward |
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b. |
above; shortage; downward |
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c. |
above; surplus; upward |
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d. |
above; surplus; downward |
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e. |
below; surplus; upward |