California State University, San Marcos - ECON 304 Quizz 4. Latest Edition 2020.

California State University, San Marcos - ECON 304 Quizz 4. Latest Edition 2020. With all answers explained. 100% Correct.

California State University, San Marcos - ECON 304Quizz 4 1. Price as a rationing device Suppose that there are three beachfront parcels of land available for sale in Huntington, and six people who would each like to purchase one parcel. Assume that the parcels are essentially identical and that the minimum selling price of each is $575,000. The following table states each person's willingness and ability to purchase a parcel. Willingness and Ability to Purchase (Dollars) Brian 750,000 Crystal 660,000 Edison 600,000 Hilary 550,000 Kevin 520,000 Maria 510,000 Which of these people will buy one of the three beachfront parcels? Check all that apply. Brian Crystal Edison Hilary Kevin Maria Assume that the three beachfront parcels are sold to the people that you indicated in the previous section. Suppose that a few days after the last of those beachfront parcels is sold, another essentially identical beachfront parcel becomes available for sale at a minimum price of $535,000. This fourth parcel will be sold because Hilary will purchase it from the seller for at least the minimum price. 1. Price as a rationing device Suppose that there are three beachfront parcels of land available for sale in Huntington, and six people who would each like to purchase one parcel. Assume that the parcels are essentially identical and that the minimum selling price of each is $745,000. The following table states each person's willingness and ability to purchase a parcel. Willingness and Ability to Purchase (Dollars) Felix 900,000 Janet 810,000 Larry 770,000 Megan 720,000 Raphael 690,000 Susan 680,000 Which of these people will buy one of the three beachfront parcels? Check all that apply. Felix Janet Larry Megan Raphael Susan Points: 1 / 1 Assume that the three beachfront parcels are sold to the people that you indicated in the previous section. Suppose that a few days after the last of those beachfront parcels is sold, another essentially identical beachfront parcel becomes available for sale at a minimum price of $732,500. This fourth parcel will not be sold because no one will purchase it from the seller for at least the minimum price. Points: 1 / 1 Close Explanation Explanation: To determine what will happen with the fourth parcel, compare the minimum selling price with the willingness and ability to pay of the remaining buyers. The remaining buyer with the highest willingness and ability to pay is Megan at $720,000. However, since $720,000 is less than the minimum selling price of $732,500 for this parcel, no one will purchase the parcel. The seller will have to lower his minimum selling price if he wants to find a buyer. 2. Price controls in the Florida orange market The following graph shows the annual market for Florida oranges, which are sold in units of 90-pound boxes. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Graph Input Tool Market for Florida Oranges Price (Dollars per box) Quantity Demanded (Millions of boxes) Quantity Supplied (Millions of boxes) In this market, the equilibrium price is $25 per box, and the equilibrium quantity of oranges is 250 million boxes. For each price listed in the following table, determine the quantity of oranges demanded, the quantity of oranges supplied, and the direction of pressure exerted on prices in the absence of any price controls. Price Quantity Demanded Quantity Supplied Pressure on Prices (Dollars per box) (Millions of boxes) (Millions of boxes) 30 145 270 Downward • 20 375 230 Upward • Points: 0.67 / 1 True or False: A price ceiling above $25 per box is a binding price ceiling in this market. (Economists call a price ceiling that prevents the market from reaching equilibrium a binding price ceiling.) True False Points: 2. Price controls in the Florida orange market The following graph shows the annual market for Florida oranges, which are sold in units of 90-pound boxes. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. In this market, the equilibrium price is $25 per box, and the equilibrium quantity of oranges is 450 million boxes. Points: 1 / 1 For each price listed in the following table, determine the quantity of oranges demanded, the quantity of oranges supplied, and the direction of pressure exerted on prices in the absence of any price controls. Price Quantity Demanded Quantity Supplied Pressure on Prices (Dollars per box) (Millions of boxes) (Millions of boxes) 15 530 270 Upward • 35 350 630 Downward • Points: 0.67 / 1 True or False: A price ceiling above $25 per box is not a binding price ceiling in this market. (Economists call a price ceiling that prevents the market from reaching equilibrium a binding price ceiling.) True False Points: 1 / 1 Close Explanation Explanation: In order for a price ceiling to be binding—that is, for it to prevent the market from reaching equilibrium—it must be set below the equilibrium price. In this case, you found that the equilibrium price was $25 per box. Therefore, any price ceiling below $25 per box would be binding, and any price ceiling set at or above $25 per box would not. 2. Price controls in the Florida orange market The following graph shows the annual market for Florida oranges, which are sold in units of 90-pound boxes. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. In this market, the equilibrium price is $25 per box, and the equilibrium quantity of oranges is 400 million boxes. For each price listed in the following table, determine the quantity of oranges demanded, the quantity of oranges supplied, and the direction of pressure exerted on prices in the absence of any price controls. Price Quantity Demanded Quantity Supplied Pressure on Prices (Dollars per box) (Millions of boxes) (Millions of boxes) 20 480 200 Upward • 30 320 580 Downward • Points: 0.83 / 1 True or False: A price ceiling below $25 per box is not a binding price ceiling in this market. (Economists call a price ceiling that prevents the market from reaching equilibrium a binding price ceiling.) True False 3. How rent control causes inefficiency Suppose the following graph shows the demand for, and supply of, apartments in New York City. Use the black point (plus symbol) to indicate the equilibrium monthly rent and quantity of apartments in the absence of price controls. Then use the green point (triangle symbol) to fill the area representing consumers’ surplus, and use the purple point (diamond symbol) to fill the area representing producers’ surplus. Points: 0.67 / 1 Suppose that the government decides to impose a rent control of $1,900 per month on rental apartments in New York City. On the following graph, use the green point (triangle symbol) to shade the area representing consumers’ surplus in the presence of rent control. Use the purple point (diamond symbol) to shade the area representing producers’ surplus after the rent control. Then use the grey point (star symbol) to shade the area representing deadweight loss resulting from the rent control. In the presence of the rent control, consumers’ surplus increases by $80 million per month and producers’ surplus decreases by $240 million per month. The price ceiling on rent causes $160 million per month of deadweight loss. Tool tip: Click on the shaded regions in the graph to see their areas. Points: 1 / 1 Close Explanation Explanation: Which of the following are generally true of rent control? Check all that apply. People most in need of an apartment may not be able to rent one. All consumers gain from rent control. Non-price methods of rationing emerge. The quantity of available rental apartments increases. The quality of rental apartments improves. Points: 0.6 / 1 3. How rent control causes inefficiency Suppose the following graph shows the demand for, and supply of, apartments in New York City. Use the black point (plus symbol) to indicate the equilibrium monthly rent and quantity of apartments in the absence of price controls. Then use the green point (triangle symbol) to fill the area representing consumers’ surplus, and use the purple point (diamond symbol) to fill the area representing Suppose that the government decides to impose a rent control of $2,000 per month on rental apartments in New York City. On the following graph, use the green point (triangle symbol) to shade the area representing consumers’ surplus in the presence of rent control. Use the purple point (diamond symbol) to shade the area representing producers’ surplus after the rent control. Then use the grey point (star symbol) to shade the area representing deadweight loss resulting from the rent control. In the presence of the rent control, consumers’ surplus increases by $100 million per month and producers’ surplus decreases by $300 million per month. The price ceiling on rent causes $200 million per month of deadweight loss. Tool tip: Click on the shaded regions in the graph to see their areas. Points: 0.8 / 1 Which of the following are generally true of rent control? Check all that apply. The quantity of available rental apartments increases. The quality of rental apartments falls. All consumers gain from rent control. Everyone who needs a place to live can rent an apartment. Non-price methods of rationing emerge. Note that rent control benefits a group of consumers while hurting another group of consumers. Consumers who are able to rent an apartment benefit from the lower rent. Consumers who are willing to pay the equilibrium rent but fail to rent an apartment due to the reduction in quantity supplied are hurt by the rent control policy. 3. How rent control causes inefficiency Suppose the following graph shows the demand for, and supply of, apartments in New York City. Use the black point (plus symbol) to indicate the equilibrium monthly rent and quantity of apartments in the absence of price controls. Then use the green point (triangle symbol) to fill the area representing consumers’ surplus, and use the purple point (diamond symbol) to fill the area representing producers’ surplus. Suppose that the government decides to impose a rent control of $2,100 per month on rental apartments in New York City. On the following graph, use the green point (triangle symbol) to shade the area representing consumers’ surplus in the presence of rent control. Use the purple point (diamond symbol) to shade the area representing producers’ surplus after the rent control. Then use the grey point (star symbol) to shade the area representing deadweight loss resulting from the rent control. the presence of the rent control, consumers’ surplus increases by $60 million per month and producers’ surplus decreases by $180 million per month. The price ceiling on rent causes $120 million per month of deadweight loss. Tool tip: Click on the shaded regions in the graph to see their areas. Points: 1 / 1 Which of the following are generally true of rent control? Check all that apply. The price ceiling represents the total opportunity costs of consumers from renting an apartment. Misallocation of apartments occurs. Some landlords may require renters to buy the furniture in the apartment. Everyone who can afford the rent can find an apartment immediately. The quality of rental apartments improves. Points: 1 / 1 Note that rent control benefits a group of consumers while hurting another group of consumers. Consumers who are able to rent an apartment benefit from the lower rent. Consumers who are willing to pay the equilibrium rent but fail to rent an apartment due to the reduction in quantity supplied are hurt by the rent control policy. 4. Minimum wage legislation The following graph shows the labor market in the fast-food industry in the fictional town of Supersize City. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Market for Labor in the Fast Food Industry Wage (Dollars per hour) Labor Demanded (Thousands of workers) Labor Supplied (Thousands of workers) In this market, the equilibrium hourly wage is $10 , and the equilibrium quantity of labor is 250 thousand workers. Points: 1 / 1 Suppose a senator introduces a bill to legislate a minimum hourly wage of $6. This type of price control is called a price floor . Points: 1 / 1 For each of the wages listed in the following table, determine the quantity of labor demanded, the quantity of labor supplied, and the direction of pressure exerted on wages in the absence of any price controls. Wage Labor Demanded Labor Supplied Pressure on Wages (Dollars per hour) (Thousands of workers) (Thousands of workers) 12 125 375 Downward • 8 375 125 Upward • Points: 1 / 1 True or False: A minimum wage above $10 per hour is not a binding minimum wage in this market. (Economists call a minimum wage that prevents the labor market from reaching equilibrium a binding minimum wage.) True False Points: 1 / 1 Close Explanation Explanation: 4. Minimum wage legislation The following graph shows the labor market in the fast-food industry in the fictional town of Supersize City. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly Market for Labor in the Fast Food Industry Wage (Dollars per hour) Labor Demanded (Thousands of workers) Labor Supplied (Thousands of workers) In this market, the equilibrium hourly wage is $10 , and the equilibrium quantity of labor is 100 thousand workers. Points: 1 / 1 Suppose a senator introduces a bill to legislate a minimum hourly wage of $8. This type of price control is called a price floor . Points: 1 / 1 For each of the wages listed in the following table, determine the quantity of labor demanded, the quantity of labor supplied, and the direction of pressure exerted on wages in the absence of any price controls. Wage Labor Demanded Labor Supplied Pressure on Wages (Dollars per hour) (Thousands of workers) (Thousands of workers) 14 60 140 Downward • 6 140 60 Upward • Points: 1 / 1 True or False: A minimum wage above $10 per hour is a binding minimum wage in this market. (Economists call a minimum wage that prevents the labor market from reaching equilibrium a binding minimum wage.) True False Points: 1 / 1 5. Taxes and the impact on relative price In her school's food court, Jamie notices that a bowl of oatmeal costs $4.00 and a slice of pizza costs $3.00. Since Jamie just finished studying for an economics exam, she immediately calculates that the relative price of a bowl of oatmeal is 1.33 slices of pizza per bowl of oatmeal . Points: 1 / 1 Relative price of a bowl of oatmeal =Absolute price of bowl of oatmeal/Absolute price of a slice of pizza = $4.00/ $3.00 = 1.33 Suppose that school administrators want to encourage healthy choices and decide to impose a $0.50 price increase on slices of pizza. Given that the absolute price of a bowl of oatmeal is unchanged, the relative price of a bowl of oatmeal decreases th Relative price of a bowl of oatmeal =Absolute price of bowl of oatmeal/Absolute price of a slice of pizza After premium = = $4.00/ $3.50 = 1.14 5. Taxes and the impact on relative price In her school's food court, Pauline notices that a carton of juice costs $1.75 and a can of soda costs $1.25. Since Pauline just finished studying for an economics exam, she immediately calculates that the relative price of a carton of juice is 1.4 cans of soda per carton of juice . Points: 1 / 1 Thus, to obtain carton of juice, Mary must give up the opportunity to buy 1.4 cans of soda. Suppose that school administrators want to encourage healthy choices and decide to impose a $0.25 price increase on cans of soda. Given that the absolute price of a carton of juice is unchanged, the relative price of a carton of juice decreases . Points: 1 / 1 Show Less