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demand and supply and government policies chapter 7
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9/12/24, 3:54 Chapter 6 - M/C withPM answers
Chapter 6
Supply, Demand, and Government Policies
TRUE/FALSE
1. Economic policies often have effects that their architects did not intend or
anticipate. ANS: T
2. Rent-control laws dictate a minimum rent that landlords may charge
tenants. ANS: F
3. Minimum-wage laws dictate the lowest wage that firms may pay
workers. ANS: T
4. Price controls are usually enacted when policymakers believe that the market price of a good or service
is unfair to buyers or sellers.
ANS: T
5. Price controls can generate
inequities. ANS: T
6. Policymakers use taxes to raise revenue for public purposes and to influence market
outcomes. ANS: T
7. If a good or service is sold in a competitive market free of government regulation, then the price of the good
or service adjusts to balance supply and demand.
ANS: T
8. At the equilibrium price, the quantity that buyers want to buy exactly equals the quantity that sellers want
to sell.
ANS: T
9. A price ceiling is a legal minimum on the price at which a good or service can be
sold. ANS: F
10. A price ceiling set above the equilibrium price is not
binding. ANS: T
115
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PM answers
116 Chapter 6/Supply, Demand, and Government Policies
11. If a price ceiling is not binding, then it will have no effect on the
market. ANS: T
12. To be binding, a price ceiling must be set above the equilibrium
price. ANS: F
13. A price ceiling set below the equilibrium price is
binding. ANS: T
14. A price ceiling set below the equilibrium price causes quantity demanded to exceed quantity
supplied. ANS: T
15. A price ceiling set above the equilibrium price causes quantity demanded to exceed quantity
supplied. ANS: F
16. A binding price ceiling causes quantity demanded to be less than quantity
supplied. ANS: F
17. A price ceiling set below the equilibrium price causes a shortage in the
market. ANS: T
18. A price ceiling set above the equilibrium price causes a surplus in the
market. ANS: F
19. A binding price ceiling causes a shortage in the
market. ANS: T
20. When a binding price ceiling is imposed on a market for a good, some people who want to buy the
good cannot do so.
ANS: T
21. Long lines and discrimination are examples of rationing methods that may naturally develop in response to
a binding price ceiling.
ANS: T
22. Price ceilings are typically imposed to benefit
buyers. ANS: T
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PM answers
Chapter 6/Supply, Demand, and Government Policies 117
23. Binding price ceilings benefit consumers because they allow consumers to buy all the goods they demand at
a lower price.
ANS: F
24. All buyers benefit from a binding price
ceiling. ANS: F
25. A binding price ceiling may not help all consumers, but it does not hurt any
consumers. ANS: F
26. When the government imposes a binding price ceiling on a competitive market, a surplus of the good
arises, and sellers must ration the scarce goods among the large number of potential buyers.
ANS: F
27. The rationing mechanisms that develop under binding price ceilings are usually
inefficient. ANS: T
28. Price is the rationing mechanism in a free, competitive
market. ANS: T
29. Prices are inefficient rationing
devices. ANS: F
30. When free markets ration goods with prices, it is both efficient and
impersonal. ANS: T
31. When a free market for a good reaches equilibrium, anyone who is willing and able to pay the market
price can buy the good.
ANS: T
32. If a price ceiling of $2 per gallon is imposed on gasoline, and the market equilibrium price is $1.50, then
the price ceiling is a binding constraint on the market.
ANS: F
33. If a price ceiling of $1.50 per gallon is imposed on gasoline, and the market equilibrium price is $2, then
the price ceiling is a binding constraint on the market.
ANS: T
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118 Chapter 6/Supply, Demand, and Government Policies
34. A price ceiling caused the gasoline shortage of 1973 in the United
States. ANS: T
35. One common example of a price ceiling is rent
control. ANS: T
36. The goal of rent control is to help the poor by making housing more
affordable. ANS: T
37. Economists argue that rent control is a highly efficient way to help the poor raise their standard of
living. ANS: F
38. Because supply and demand are inelastic in the short run, the initial shortage caused by rent control is
large. ANS: F
39. The primary effect of rent control in the short run is to reduce
rents. ANS: T
40. The housing shortages caused by rent control are larger in the long run than in the short run because both
the supply of housing and the demand for housing are more elastic in the long run.
ANS: T
41. The effects of rent control in the long run include lower rents and lower-quality
housing. ANS: T
42. Rent control may lead to lower rents for those who find housing, but the quality of the housing may also
be lower.
ANS: T
43. In a free market, the price of housing adjusts to eliminate the shortages that give rise to undesirable
landlord behavior.
ANS: T
44. A price floor is a legal minimum on the price at which a good or service can be
sold. ANS: T
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