Question

       7.    What will happen in a market where a binding price ceiling is removed?

a.	There will be downward pressure on the price in the legal market.
b.	The products sold will improve in quality and become more plentiful.
c.	Sellers will face a reduced incentive to sell the product.
d.	Buyers will find the good more difficult to obtain in the legal market.
e.	There will be increased pressure to buy and sell the good on the black market.

2.    Government officials who impose price controls

a.	understand that their action causes a trade-off: giving up fairness to get efficiency.
b.	understand that their action will induce a better achievement of the gains from trade.
c.	understand that their action is supported by most economists, and hence best for society.
d.	might not understand that their action causes confusion in the price signaling mechanism that directs the allocation of resources.
e.	might not understand that their action will not get them the votes they seek.

       4.    Many states have laws that limit the maximum amount of interest that a lender can charge a borrower. Such a law is an example of a(n)

a.	equilibrium price.	d.	black market price.
b.	price ceiling.	e.	ration price.
c.	price floor.

5.    The town of Fairness has a law that says that wages should be high enough to ensure that all people can afford to buy enough food to feed their families. The law that sets food prices low enough to meet these requirements would be an example of a

a.	minimum wage law.	d.	black market price.
b.	fair wage law.	e.	ration price.
c.	price ceiling.

Answer 1

1. Ans -A) There will be downward pressure on the price in the legal market.

2. Ans - D) might not understand that their action causes confusion in the price signaling mechanism that directs the allocation of resources.

3. Ans - B) price ceiling.

4. Ans - c) price ceiling.