Chapter 6Supply, Demand, and Government PoliciesMULTIPLE CHOICE1.Price controls area.used to make markets more efficient.b.usually enacted when policymakers believe that the market price of a good or service is unfair to buyers or sellers.c.nearly always effective in eliminating inequities.d.established by firms with monopoly power.ANSWER: b.usually enacted when policymakers believe that the market price of a good or service is unfair to buyers or sellers.TYPE: M DIFFICULTY: 22.Policymakers choose to enact price controls in a market becausea.they believe the markets outcome to be unfair.b.enacting price controls will directly increase tax revenues.c.they are required by law to improve market conditions.d.they believe that the market system is inefficient and their actions will improve efficiency.ANSWER: a.they believe the markets outcome to be unfair.TYPE: M SECTION: 1 DIFFICULTY: 23.Policymakers are led to control prices becausea.they view the markets outcome as inefficient.b.they view the markets outcome as unfair.c.all politicians enjoy exercising their power.d.they are required to do so under the Employment Act of 1946.ANSWER: b.they view the markets outcome as unfair.TYPE: M SECTION: 1 DIFFICULTY: 24.Price controlsa.always produce an equitable outcome.b.always produce an efficient outcome.c.can generate inequities of their own.d.produce revenue for the government.ANSWER: c.can generate inequities of their own.TYPE: M SECTION: 1 DIFFICULTY: 25.Which of the following is a reason policymakers impose taxes?a.to attempt to make markets more efficientb.to influence market outcomesc.to raise revenue for public used.All of the above are correct.e.Both b and c are correct.ANSWER: e. Both b and c are correct.TYPE: M SECTION: 1 DIFFICULTY: 26.A legal maximum price at which a good can be sold is a pricea.floor.b.stabilization.c.support.d.ceiling.ANSWER: d.ceiling.TYPE: M SECTION: 1 DIFFICULTY: 17.A government-imposed maximum price at which a good can be sold is called a pricea.floor.b.ceiling.c.support.d.equilibrium.ANSWER: b.ceiling.TYPE: M SECTION: 1 DIFFICULTY: 18.A price ceilinga.is a legal maximum on the price at which a good can be sold.b.is a legal minimum on the price at which a good can be sold.c.occurs when the price in the market is temporarily above equilibrium.d.will usually result in a market surplus.ANSWER: a.is a legal maximum on the price at which a good can be sold.TYPE: M SECTION: 1 DIFFICULTY: 19.A legal minimum price at which a good can be sold is a pricea.cut.b.stabilization.c.ceiling.d.floor.ANSWER: d.floor.TYPE: M SECTION: 1 DIFFICULTY: 110.A price floora.is a legal minimum on the price at which a good can be sold.b.is a legal maximum on the price at which a good can be sold.c.will generally result in a market shortage.d.will benefit the consumer, but hurt the supplier.ANSWER: a.is a legal minimum on the price at which a good can be sold.TYPE: M SECTION: 1 DIFFICULTY: 111.A price ceiling will only be binding if it is seta.equal to equilibrium price.b.above equilibrium price.c.below equilibrium price.d.A price ceiling is never binding in a free market system.ANSWER: c.below equilibrium price.TYPE: M SECTION: 1 DIFFICULTY: 212.A binding price ceiling causesa.a shortage, which cannot be eliminated through market adjustment.b.a surplus, which cannot be eliminated through market adjustment.c.a shortage, which is temporary, since market adjustment will cause price to rise.d.a surplus, which is temporary, since market adjustment will cause price to rise.ANSWER: a.a shortage, which cannot be eliminated through market adjustment.TYPE: M SECTION: 1 DIFFICULTY: 213.If a price ceiling is not binding,a.the equilibrium price is above the ceiling.b.the equilibrium price is below the ceiling.c.it has no legal enforcement mechanism.d.people must voluntarily agree to abide by it.ANSWER: b.the equilibrium price is below the ceiling.TYPE: M SECTION: 1 DIFFICULTY: 214.A price ceiling that is not binding willa.cause a surplus in the market.b.cause a shortage in the market.c.cause the market to be less efficient.d.have no effect on the market price.ANSWER: d.have no effect on the market price.TYPE: M SECTION: 1 DIFFICULTY: 215.Binding price ceilings in a market cause quantity demanded to bea.greater than quantity supplied.b.equal to quantity supplied.c.less than quantity supplied.d.Any of the above are possible.ANSWER: a.greater than quantity supplied.TYPE: M SECTION: 1 DIFFICULTY: 316.If a binding price ceiling is imposed in a marketa.there will be a surplus in the market.b.the price will be legally forced toward equilibrium price.c.