1

Suppose the equilibrium price in a market is $5.00 per unit. Which of the following would be an example of a non-binding price ceiling?

a) A law preventing sellers from charging more than $6.00

b) A law preventing sellers from charging more than $4.00

c) A law preventing sellers from charging less than $6.00

d) A law preventing sellers from charging less than $4.00

2

Suppose the equilibrium price of milk is $3.50 per gallon. If the government said it was illegal to charge a price below $3 per gallon, this would be an example of a

a) binding price ceiling

b) non-binding price ceiling

c) binding price floor

d) non-binding price floor

3

In the case of a binding price ceiling, it is true that

a) Supply will decrease

b) There is excess supply

c) Demand will increase

d) None of these answers are true

4

The table gives the demand and supply curves for hot dogs

Price	0	1	2	3	4	5	6	7	8
Quantity Demanded	240	210	180	150	140	90	60	30	0
Quantity Supplied	0	30	60	90	120	150	180	210	240

Assume there is a price floor at $6. What is the level of consumer surplus?

a) Consumer Surplus = $60

b) Consumer Surplus = $360

c) Consumer Surplus = $120

d) Consumer Surplus = $180

5

Suppose a binding price floor is placed on the sale of DVDs. Which of the following would you expect to see in the market for DVDs?

a) Consumers will bribe store owners for the right to buy DVDs.

b) Some consumers will buy the good at the legal price and then resell the DVD in the black market.

c) The quality of the DVD and service provided by sellers may increase

d) Consumers will wait in long lines in order to purchase the DVDs

6

In the case of a binding price floor, which of the following is true?

a) The price floor will cause an increase in the quantity demanded

b) Consumers can easily find units to purchase

c) The equilibrium market price is higher than the price floor

d) At the price floor there would be excess demand for the good

7

In the case of a binding price ceiling, which of the following is false?

a) The quality of the good may decrease

b) Sellers may give free gifts to consumers that purchase their good

c) Producers may be more inclined to discriminate when choosing whom to sell to

d) A black market for the good may develop

8

A binding price ceiling will

a) Decrease Demand and Increase Supply

b) Increase Demand and Decrease Supply

c) Increase the quantity demanded and decrease the quantity supplied

d) Decrease the quantity demanded and increase the quantity supplied

9

Suppose a market is characterized by consumers waiting in long lines and persistent shortages of the good. This is most likely the result of which government action?

a) The setting of a price ceiling

b) The setting of a price floor

c) An increase in taxes on the good

d) A decrease in taxes on the good

10

In the market for doctors and lawyers, the setting of a $15/hour minimum wage would be an example of a

a) Binding price ceiling

b) Non-binding price ceiling

c) Binding price floor

d) Non-binding price floor