ECO100Y1 Lecture Notes - Lecture 4: Price Ceiling, Price Floor, Working Poor

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bluegrasshopper710

31 Jan 2018

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Government sometimes impose price ceilings (i. e. rent control) or price floors (i. e. Government sometimes impose price ceilings (i. e. rent control) or price floors (i. e. minimum wages) When governments interfere with the functioning of markets. there are often unintended consequences. Insight: demand and supply should be drawn and the impact assessed. *when you set a price ceiling, must be below equilibrium to have effect, above equilibrium = no impact. Economic impact of rent controls: create shortages (qd > qs, discourage construction & maintenance of rentals. But do rent controls help disadvantaged: to some extent, but at the above cost. *when you set a price floor, must be above equilibrium to have effect, below equilibrium = no impact. Affects teenagers, who are just entering job market. Suppose you are an employer and the minimum wage rate increases from . 25 to . 00 per hour.

Related Questions

Who bears the primary costs of a rent control program?

landlords

renters that get rent-controlled apartments

taxpayers

the wealthy

Assume the demand for sushi is Qd = 180 - 3P, where Qd is quantity demanded and P = price in dollars. The supply of sushi is Qs = 80 + 5P, where Qs is quantity supplied (and P is, again, price in dollars). A price of $20 would result in:

	A.	Excess supply of 60
	B.	Excess supply of 120
	C.	Excess supply of 140
	D.	Excess demand of 140

US agricultural price supports are politically popular because

They have no adverse impacts

The US would have food shortages without them

The benefits accrue to a large number of voters and the costs are paid by a small number of voters

The costs are spread out among millions of people

	A.	$15.50
	B.	$12.50
	C.	$10
	D.	$15

Price floors and ceiling prices:

cause the supply and demand curves to shift until equilibrium is established.

both cause surpluses.

interfere with the rationing function of prices.

A change in the price of a good leads to a change in ________, which leads to a ___________

quantity supplied; shift of the supply curve

supply; shift of the supply curve

quantity supplied; movement along the supply curve

When the supply of a product increases, this implies that

the price of the product first declined

more will be purchased at the same price

producers will be willing to accept a lower price for each unit sold

demand for the good must have increased

producers will offer less for sale at each possible price

If there is a excess demand for product X:

fewer resources will be allocated to the production of this good.

the price of the product will rise.

the supply curve will shift to the left and the demand curve to the right, eliminating the shortage.

the price of the product will decline.

Which of the following will occur when there is a simultaneous decrease in demand and a decrease in supply?

B and D both necessarily occur

An increase in equilibrium quantity

A and C both necessarily occur

An increase in price

A and D both necessarily occur

A decrease in price

A decrease in equilibrium quantity

Velcro is becoming more and more popular for a variety of uses, including as fasteners for shoes. What should happen to the equilibrium price and quantity for shoelaces as a result?

Both price and quantity should decrease.

Price should increase and quantity decrease.

Both price and quantity should increase.

Price should decrease and quantity increase.

Nothing.

If the government imposes a ceiling price on apartment rents, we would expect to observe all of the following except one. Which is the exception?

	A.	conversion of some apartment complexes to condos
	B.	a shortage
	C.	an increase in the number of new apartment complexes being built
	D.	lower maintenance of existing apartments
	E.	long waiting lists for apartment seekers

supply; movement along the supply curve

both cause shortages.

chocolatebadger640

1.) An excise tax on a good typically reduces the net price received by the seller. (TRUE/FALSE)

2.) The burden of an excise tax on gasoline falls entirely on consumers of gasoline. (TRUE/FALSE)

3.) Rent controls are one of the few examples of a price floor in market economies. (TRUE/FALSE)

4.) Imposing a price ceiling below the equilibrium price of a good often leads to_____.

A) A greater supply of the good

B) A black market for the good

C) A rightward shift of the supply curve for the good.

D) A leftward shift of the demand curve for the good.

E) All of these

5.) Which of the following is true of price floors and ceilings?

A) Lead to the same price and quantity as in competitive market.

B) Lead to technical efficiency

C) Cause the demand curve to shift left

D) Usually result from government intervention

E) Cause the supply curve to shift right.

6.) Price ceilings often lead to black markets. (TRUE/FALSE)

7.) When minimum wage is above the equilibrium wage what occurs?

A) There will be a shortage of labor

B) There will be no effect on the number of people employed

C) There will be an increase in unemployment rate

D) There will be a decrease in unemployment rate

8.) An excise tax on a good typically reduces the price paid by the consumer (TRUE/FALSE)

9.) If a price ceiling is below the equilibrium price is imposed on a market, it will cause the quantity demanded to rise and the quantity supplied to fall. (TRUE/FALSE)

10.) Price floors often lead to black markets. (TRUE/FALSE)

11.) If an excise tax is imposed on restaurant meals what occurs?

A) Fewer meals will be produced and sold

B) More meals will be produced and sold

C) Market price of the meals will fall

D) Government tax revenue will fall.

mauveyellowjacket715

I've completed this but I want to check my answers. Thanks

1) List and briefly explain three economic variables that shift the Demand Curve.

2) Define opportunity cost. How is opportunity cost used to determine comparative advantage?

3) In the market for calculators we observe that the price has fallen and more calculators are being sold. What might have happened to cause this change?

4) The price of gasoline rises. What would we expect to see happen in the market for cars with high gas mileage (like the Prius)?

5) What is the effect of a price floor (a price set above equilibrium) in the sugar market. Why does the government impose price floors?

6) Define the price elasticity of demand. Why is this concept important in economics?

7) Define the income elasticity of demand. Why is this concept important in economics?

8) List and briefly explain three economic variables that shift the Supply Curve.

9) A firm lowers of price of its product by 10% and consumers buy 5% more of the product. What is the price elasticity of demand for the product?

10) If the price elasticity of demand for a product is elastic, explain what will happen to total revenue when the price is decreased.

11) What is the difference between a change in quantity supplied and a shift in supply?

12) Write out the equation for the arc price elasticity of demand using symbols. Then write out the equation using the following numbers: the price increases from $8 to $10 and the quantity demanded falls from 3 units to 2 units. (Do not calculate the equation.)
Three Questions (no choice)

Long Answer Questions (20 points each)

Be certain to label all graphs. Write all explanations in complete sentences.

1) Draw a supply and demand graph for the market for oranges.

Illustrate and explain what happens with when a freeze destroys part of the crop.

2) Draw an increasing cost Production Possibilities Curve (PPC) for the U.S. with computers on the horizontal axis and textiles on the vertical axis.
a) What is the definition of a PPC

b) Choose a point on the PPC. What does this point represent?

c) Illustrate the opportunity cost of producing more computers.

d) Explain a point inside the PPC.

e) Explain a point outside the PPC.

f) Technological change reduces the cost of producing computers and textiles, illustrate and explain what happens in the graph.

g) Choose a new point that represents production and consumption after technological change.

h) Where does the U.S. produce and consume relative to before technological change.

i) Illustrate and explain the opportunity cost of producing more computers after technological change.

3) Define the price elasticity of demand. What does elastic, inelastic and unitary price elasticity of demand mean? For each of the three values of the price elasticity of demand explain what happens to quantity demanded and total revenue when the price of the product is increased? What about when the price of the product is decreased?

4) Using a supply and demand graph in the market for bread, illustrate and explain the effect of a price ceiling (Price set below equilibrium price).

Why would the government impose such a price ceiling?

How is the available bread distributed to consumers when there is a price ceilin

ECO100Y1 Lecture Notes - Lecture 4: Price Ceiling, Price Floor, Working Poor

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