Download EC 201, Practice Problems 1. If the government sets a price ceiling

EC 201, Practice Problems
1. If the government sets a price ceiling on a market that is above the equilibrium price, is the
ceiling effective or ineffective? (By “effective” we mean that the floor or ceiling will achieve its
intended results.)
2. If the government sets a price ceiling on a market that is below the equilibrium price, is ceiling
effective or ineffective?
3. If the government sets a price floor on a market that is above the equilibrium price, is the floor
effective or ineffective?
4. If the government sets a price floor on a market that is below the equilibrium price, is the floor
effective or ineffective?
5. Explain what typically happens (rises or falls) to price, quantity supplied and quantity
demanded when an effective price ceiling is removed from a market?
6. Explain what typically happens to price, quantity supplied and quantity demanded when an
effective price floor is imposed on a market?
7. Explain what typically happens to price, quantity supplied and quantity demanded when an
effective price floor is removed from a market?
8. Explain what typically happens to price, quantity supplied and quantity demanded when an
ineffective price ceiling is imposed on a market?
9. Explain what typically happens to price, quantity supplied and quantity demanded when an
ineffective price floor is imposed on a market?
10. Is a usury law a price ceiling or floor? Would it be the borrowers or lenders who would most
desire this usury law?
11. Are price supports for agricultural products price floors or price ceilings? Would it be the
buyers or sellers who would most desire these price supports?
12. Are minimum wage laws price floors or price ceilings? Would it be the employers or
employees who would most desire minimum wages?
13. Are rent control laws price floors or ceilings? Would it be the renter or landowner who would
most desire rent controls laws?
14. Referring to the supply and demand schedules below for the market for wheat, find the
equilibrium price/bushel and quantity. Tell what would happen to the price, quantity supplied
and quantity demanded if the government placed a price floor (agricultural price support) at
$9/bushel. What about $10? And what about $6?
Supply Schedule Demand Schedule
Price
Quantity Price
Quantity
$ 4.00
200 $ 4.00
650
$ 5.00
300 $ 5.00
600
$ 6.00
400 $ 6.00
550
$ 7.00
500 $ 7.00
500
$ 8.00
600 $ 8.00
450
$ 9.00
700 $ 9.00
400
$ 10.00
800 $ 10.00
350
15. Referring to the supply and demand schedules below for the market for gasoline, find the
equilibrium price and quantity. Tell what would happen to price, quantity supplied and quantity
demanded if the government placed a price ceiling (cap) at $2/gallon. What about $3? And what
about $7?
Supply
Schedule Demand Schedule
Price
Quantity Price
Quantity
$
2.00
50 $
2.00
250
$
3.00
100 $
3.00
200
$
4.00
150 $
4.00
150
$
5.00
200 $
5.00
100
$
6.00
250 $
6.00
75
$
7.00
300 $
7.00
50
$
8.00
350 $
8.00
25