Microeconomics For Life Smart Choices For You Canadian 2nd Edition Cohen Test Bank Download

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Microeconomics for Life: Smart Choices for You, 2e (Cohen)

Chapter 6 What Gives When Prices Don't? Government Policy Choices
6.1 Do Prices or Quantities Adjust? Unintended Consequences of Government Policies
1) When prices are fixed above market-clearing levels, all of the following happen except
A) frustrated sellers.
B) shortages.
C) surpluses.
D) quantity adjustments.
E) undesired increases in inventories.
Answer: B
Diff: 2 Type: MC Page Ref: 140-143
Skill: Applied
Objective: 6.1 Explain how government-fixed prices cause quantities to adjust and market
coordination to fail.
2) When prices are fixed above the equilibrium price, all of the following happen except
A) frustrated sellers.
B) shortages.
C) surpluses.
E) undesired increases in inventories.
Answer: B
Skill: Applied
1
Copyright © 2016 Pearson Canada, Inc.
3) When prices are fixed below market-clearing levels, all of the following happen except
A) surpluses.
B) shortages.
C) frustrated buyers.
E) undesired decreases in inventories.
Answer: A
Skill: Applied
2
4) When prices are fixed below the equilibrium price, all of the following happen except
A) surpluses.
B) shortages.
C) frustrated buyers.
E) undesired decreases in inventories.
Answer: A
Skill: Applied
5) When prices are fixed above market-clearing levels,

A) there are shortages.
B) quantity demanded is greater than quantity supplied.
C) buyers are frustrated.
D) quantity adjusts to quantity supplied.
E) sellers are frustrated.
Answer: E
Skill: Applied
6) When prices are fixed above the equilibrium price,

A) there are shortages.
B) quantity demanded is greater than quantity supplied.
C) buyers are frustrated.
D) quantity adjusts to quantity supplied.
Answer: E
Skill: Applied
7) When prices are fixed below market-clearing levels,

A) there are surpluses.
B) quantity adjusts to quantity demanded.
C) quantity supplied is greater than quantity demanded.
D) quantity demanded is greater than quantity supplied.
Answer: D
Skill: Applied
3
8) When prices are fixed below the equilibrium price,
A) there are surpluses.
B) quantity adjusts to quantity demanded.
C) quantity supplied is greater than quantity demanded.
D) quantity demanded is greater than quantity supplied.
Answer: D
Skill: Applied
9) When governments fix prices below the equilibrium price,

A) there is a decrease in demand.
B) quantity supplied is greater than quantity demanded.
C) quantity supplied equals quantity demanded.
D) there is an increase in supply.
E) quantity demanded is greater than quantity supplied.
Answer: E
Skill: Applied
10) When governments fix prices below the equilibrium price,

A) there is an increase in demand.
D) there is a decrease in supply.
Answer: E
Skill: Applied
4
11) When governments fix prices below market-clearing levels,
Answer: E
Skill: Applied
12) When governments fix prices below market-clearing levels,

Answer: E
Skill: Applied
13) When governments fix prices above the equilibrium price,

Answer: B
Skill: Applied
14) When governments fix prices above the equilibrium price,

Answer: B
Skill: Applied
5
15) When governments fix prices above market-clearing levels,
Answer: B
Skill: Applied
16) When governments fix prices above market-clearing levels,

Answer: B
Skill: Applied
17) A price ceiling set below the equilibrium price results in

A) surpluses.
B) shortages.
C) the equilibrium price.
D) an increase in supply.
E) a decrease in demand.
Answer: B
Skill: Applied
6
18) A price ceiling set above the equilibrium price results in
A) surpluses.
B) shortages.
Answer: C
Skill: Applied
19) A price floor set below the equilibrium price results in

A) surpluses.
B) shortages.
Answer: C
Skill: Applied
20) A price floor set above the equilibrium price results in

A) surpluses.
B) shortages.
Answer: A
Skill: Applied
7
21) When governments set a price in a market that is not an equilibrium price, the quantity
actually sold at that price
A) is determined by the quantity demanded.
B) is determined by the quantity supplied.
C) is determined by whichever is less, quantity demanded or quantity supplied.
D) is determined by whichever is more, quantity demanded or quantity supplied.
E) cannot be determined without knowing if there is a shortage or surplus.
Answer: C
Skill: Applied
22) Fixing prices prevents the flow of information and incentives that make markets effective at
producing what we want.
Answer: TRUE
Diff: 2 Type: TF Page Ref: 140-143
Skill: Recall
23) When prices are fixed above market-clearing levels, quantities adjust and shortages develop.
Consumers are frustrated.
Answer: FALSE
Skill: Applied
24) When prices are fixed below market-clearing levels, quantities adjust and shortages develop.
Consumers are frustrated.
Answer: TRUE
Skill: Applied
25) When prices are fixed above market-clearing levels, quantities adjust and surpluses develop.
Businesses are frustrated.
Answer: TRUE
Skill: Applied
8
26) When prices are fixed below market-clearing levels, quantities adjust and surpluses develop.
Businesses are frustrated.
Answer: FALSE
Skill: Applied
27) Governments have the power to fix prices, but they can't force businesses to produce if that
price is not profitable.
Answer: TRUE
Skill: Applied
28) Governments have the power to force consumers to buy at fixed prices.
Answer: FALSE
Skill: Applied
29) When governments fix prices above market-clearing levels, consumers are forced to buy
more at the higher price.
Answer: FALSE
Skill: Applied
30) When prices are fixed below market-clearing levels, buyers may bribe sellers to get scarce
products.
Answer: TRUE
Skill: Applied
31) When prices are fixed below market-clearing levels, sellers may bribe buyers to ensure the
sellers are not left out.
Answer: FALSE
Skill: Applied
9
32) When prices are fixed in a market, quantities adjust to whichever is less - quantity supplied
or quantity demanded.
Answer: TRUE
Skill: Applied
33) When prices are fixed in a market, quantities adjust to whichever is more - quantity supplied
or quantity demanded.
Answer: FALSE
Skill: Applied
34) Waiting lists are a form of quantity adjustment.

Answer: TRUE
Skill: Applied
35) Unwanted inventory changes are a form of quantity adjustment.

Answer: TRUE
Skill: Applied
36) Key money is a form of quantity adjustment.

Answer: FALSE
Skill: Applied
37) Many young adults remain at home or "double up" with friends in apartments. Doubling up
is a quantity adjustment by renters in the rental housing market.
Answer: TRUE
Skill: Applied
10
38) When governments fix prices above the market-clearing price, the smart choices of
consumers and businesses are not coordinated.
Answer: TRUE
Skill: Applied
39) When governments fix prices below the market-clearing price, the smart choices of
consumers and businesses are not coordinated.
Answer: TRUE
Skill: Applied
40) When governments fix prices above the market-clearing price, the smart choices of
consumers and businesses are coordinated.
Answer: FALSE
Skill: Applied
41) When governments fix prices below the market-clearing price, the smart choices of
consumers and businesses are coordinated.
Answer: FALSE
Skill: Applied
11
6.2 Do Rent Controls Help the Homeless? Price Ceilings
1) Most city governments set a maximum price that can be charged by taxis. This is an example
of
A) a cost-saving technology.
B) key money.
C) a price floor.
D) a price ceiling.
E) an inferior service.
Answer: D
Skill: Applied
Objective: 6.2 Describe price ceilings and explain the unintended consequences of government
rent-control policies.
2) When a city government sets a maximum price for taxi fares that is below the market-clearing
price, we see
A) long waits for taxis.
B) a decrease in demand.
C) frustrated taxi drivers who can't find riders.
D) an excess supply of taxis.
E) an increase in supply.
Answer: A
Skill: Applied
3) When a city government sets a minimum price for taxi fares that is above the market-clearing
price, we see
A) an increase in supply.
B) frustrated riders who can't find a taxi.
C) a shortage of taxis.
D) a decrease in demand.
E) an excess supply of taxis.
Answer: E
Skill: Applied
12
4) Rent controls
A) keep rental prices below the market-clearing price.
B) keep rental prices equal to the market-clearing price.
C) keep rental prices above the market-clearing price.
D) eventually increase the quality of rental units in the market.
E) eventually increase the quantity of rental units in the market.
Answer: A
Skill: Recall
5) Rent controls create a

A) price ceiling below the market-clearing price.
B) price floor below the market-clearing price.
C) price floor above the market-clearing price.
D) price ceiling above the market-clearing price.
E) market-clearing price.
Answer: A
Skill: Recall
6) Rent controls create a(n)

A) price ceiling below the equilibrium price.
B) price floor below the equilibrium price.
C) price floor above the equilibrium price.
D) price ceiling above the equilibrium price.
E) equilibrium price.
Answer: A
Skill: Recall
7) If rent controls are eliminated,

A) the number of rental apartments decreases.
B) rental prices rise.
C) rental prices fall.
D) the number of rental apartments does not change.
E) rental prices do not change.
Answer: B
Skill: Applied
13
8) A price ceiling for gasoline set below the market-clearing price results in
A) a minimum price for gasoline.
B) increases in the quantity supplied by the oil companies.
C) decreases in the quantity demanded by buyers.
D) long lineups at the pumps.
E) incentives to discover new oil reserves and alternative fuels.
Answer: D
Skill: Applied
9) The shortages and lineups created by setting a price ceiling for gasoline will be worst when
the demand for gasoline by drivers is ________ and the supply of gasoline by the oil companies
is ________.
A) inelastic; inelastic
B) elastic; elastic
C) inelastic; elastic
D) elastic; inelastic
E) zero; infinity
Answer: B
Skill: Applied
10) Setting a maximum price for gasoline below the market-clearing price
A) benefits oil companies.
B) has no impact.
C) creates long lineups at the pumps.
D) creates a surplus of gasoline.
E) is a better idea than subsidizing low-income drivers.
Answer: C
Skill: Applied
14
11) Setting a price ceiling for gasoline benefits
A) drivers who can't find gasoline.
B) all drivers.
C) oil companies.
D) people who do not drive.
E) drivers who can find gasoline without lineups.
Answer: E
Skill: Applied
12) A price ceiling for gasoline set below the market-clearing price results in a(n)
A) excess demand.
B) higher price.
C) decrease in demand.
D) increase in supply.
E) excess supply.
Answer: A
Skill: Applied
13) A price ceiling for gasoline set above the market-clearing price
A) causes excess supply.
B) causes a decrease in supply.
C) causes a decrease in demand.
D) has no impact.
E) causes excess demand.
Answer: D
Skill: Applied
15
14) Eliminating rent controls should lead landlords to create additional rental housing. This
increase in rental units is largest when
A) demand is elastic.
B) supply is inelastic.
C) demand is inelastic.
D) supply is elastic.
E) there is a lack of available land in the area.
Answer: D
Skill: Applied
15) Eliminating rent controls results in large increases in rents if

A) landlords have an elastic supply.
B) landlords have an inelastic supply.
C) demand is very elastic.
D) tenants have an inelastic supply.
E) tenants have an elastic supply.
Answer: B
Skill: Applied
16) The shortages created by rent controls is largest when demand by tenants is ________ and
supply by landlords is ________.
A) inelastic; inelastic
B) elastic; inelastic
C) inelastic; elastic
D) elastic; elastic
E) unknown; elastic
Answer: D
Skill: Applied
16
17) Government housing subsidies are a better policy alternative to rent controls because
A) people who live at home will be better off.
B) these subsidies provide income for governments.
C) government housing subsidies will be less expensive.
D) market-clearing prices will coordinate the choices of landlords and renters.
E) rents will stay above market-clearing levels.
Answer: D
Skill: Applied
18) A rent ceiling set above the market-clearing rent

A) might be fair, but it isn't efficient.
B) can motivate some landlords to convert their rental units into condominiums.
C) creates a shortage of rental housing.
D) can result in landlords charging "key money."
E) has no effect.
Answer: E
Skill: Applied
19) Which is not an outcome of rent ceilings?

A) a surplus of condominium housing
B) black market rents above the rent-controlled prices
C) black market rents below the rent-controlled prices
D) long waiting lists for rent-controlled housing
E) a shortage of rental housing
Answer: C
Skill: Applied
20) If the government sets a maximum rent for apartments above the equilibrium rent,
A) there is no effect in the market for apartments.
B) there will be a shortage of apartments.
C) there will be a surplus of apartments.
D) the demand for apartments will increase.
E) the supply of apartments will decrease.
Answer: A
Skill: Applied
17
21) Which is not an outcome of a rent ceiling?
A) a black market for rent-controlled housing
B) long waiting lists for rent-controlled housing
C) a shortage of housing
D) a black market rent below the rent ceiling
E) increased search time for rent-controlled housing
Answer: D
Skill: Applied
22) If the government sets a rent ceiling above the equilibrium rent,
A) the supply of rental housing increases.
B) there is a shortage of rental housing.
C) there is a surplus of rental housing.
D) the equilibrium rent does not change.
E) the equilibrium rent rises.
Answer: D
Skill: Applied
23) In an unregulated housing market with no rent ceiling, rents are determined by the
A) landlords only.
B) tenants only.
C) government only.
D) market.
E) landlords and governments.
Answer: D
Skill: Applied
18
Figure 6.2.1
24) Look at the market for apartments in Figure 6.2.1. If a price ceiling on rents is set at $2,000,
then
A) 100 apartments are rented at $2,000 each.
B) 100 apartments are rented at $1,500 each.
C) 150 apartments are rented at $1,500 each.
D) 200 apartments are rented at $1,000 each.
E) 200 apartments are rented at $2,000 each.
Answer: C
Skill: Applied
25) Look at the market for apartments in Figure 6.2.1. If a price ceiling on rents is set at $1,000,
then
A) 100 apartments are rented at $2,000 each.
B) 100 apartments are rented at $1,500 each.
C) 150 apartments are rented at $1,500 each.
D) 200 apartments are rented at $1,000 each.
E) 100 apartments are rented at $1,000 each.
Answer: E
Skill: Applied
19
26) Look at the market for apartments in Figure 6.2.2. The market-clearing outcome, without
rent controls, is a rent of ________ and a quantity of ________.
A) $1,000; 4
B) $1,000; 9
C) $1,500; 4
D) $1,500; 6
E) $1,500; 9
Answer: D
Skill: Applied
20
27) Look at the market for apartments in Figure 6.2.2. The consumer surplus of the market-
clearing outcome is area
A) ACL.
B) ABN.
C) AEL.
D) CEL.
E) NKL.
Answer: A
Skill: Applied
28) Look at the market for apartments in Figure 6.2.2. The producer surplus of the market-
clearing outcome is area
A) ACL.
B) DEK.
C) AEL.
D) CEL.
E) NKL.
Answer: D
Skill: Applied
29) Look at the market for apartments in Figure 6.2.2. The total surplus of the market-clearing
outcome is area
A) ACL.
B) DEK.
C) AEL.
D) CEL.
E) NKL.
Answer: C
Skill: Applied
21
30) Look at the market for apartments in Figure 6.2.2. If the government sets a rent ceiling of
$1,000, the rent-controlled outcome is a rent of ________ and a quantity of ________.
A) $1,000; 4
B) $1,000; 9
C) $1,500; 4
D) $1,500; 6
E) $1,500; 9
Answer: A
Skill: Applied
$1,000, the consumer surplus of the rent-controlled outcome is area
A) ACL.
B) ABN.
C) AEL.
D) CEL.
E) NKL.
Answer: B
Skill: Applied
$1,000, the producer surplus of the rent-controlled outcome is area
A) DEK.
B) ABN.
C) AEL.
D) CEL.
E) NKL.
Answer: A
Skill: Applied
22
$1,000, the deadweight loss of the rent-controlled outcome is area
A) DEK.
B) ABN.
C) AEL.
D) CEL.
E) NKL.
Answer: E
Skill: Applied
$1,000, the difference between quantity demanded and quantity supplied is a
A) surplus of KJ apartments.
B) shortage of KJ apartments.
C) surplus of FG apartments.
D) shortage of FG apartments.
E) shortage of GH apartments.
Answer: B
Skill: Applied
35) Look at the market for apartments in Figure 6.2.2. The government sets a rent ceiling of
$1,000. What is the unintended loss of apartments compared to the market-clearing outcome?
A) KJ apartments
B) EF apartments
C) FG apartments
D) EG apartments
E) GH apartments
Answer: C
Skill: Applied
36) Rent controls, which set a maximum rent, are a price ceiling.
Answer: TRUE
Skill: Recall
23
37) Rent controls, which set a maximum rent, are a price floor.
Answer: FALSE
Skill: Recall
38) Rent controls set a minimum rent that landlords can charge.
Answer: FALSE
Skill: Recall
39) Rent controls re-distribute income from the poorer to the richer.
Answer: FALSE
Skill: Applied
40) Rent controls subsidize well-off tenants who are willing and able to pay market-clearing
rents.
Answer: TRUE
Skill: Applied
41) A rent ceiling set above the market-clearing rent is irrelevant.

Answer: TRUE
Skill: Applied
42) A rent ceiling set below the market-clearing rent is irrelevant.

Answer: FALSE
Skill: Applied
24
43) Rent controls create surpluses of affordable housing.
Answer: FALSE
Skill: Applied
44) Housing shortages are an unintended consequence of rent controls.

Answer: TRUE
Skill: Applied
45) Housing surpluses are an unintended consequence of rent controls.

Answer: FALSE
Skill: Applied
46) An unintended consequence of rent controls is landlords spend less on maintaining their
apartment buildings.
Answer: TRUE
Skill: Applied
47) With controlled rents, landlords may earn more money by turning their condominiums into
rental apartments.
Answer: FALSE
Skill: Applied
48) With controlled rents, landlords may earn more money by turning their rental apartments into
condominiums.
Answer: TRUE
Skill: Applied
25
49) The practice of charging "key money" is a way of allocating scarce rental apartments to those
willing and able to pay the highest price.
Answer: TRUE
Skill: Applied
50) Government housing subsidies are a superior policy to rent controls because markets can
continue to flexibly coordinate the smart choices of consumers and businesses.
Answer: TRUE
Skill: Applied
51) If governments introduce a minimum rent above the market-clearing level, so that no
landlord can charge a lower price, there is a shortage of rental housing.
Answer: FALSE
Skill: Applied
52) If governments introduce a minimum rent above the market-clearing level, so that no
landlord can charge a lower price, there is a surplus of rental housing.
Answer: TRUE
Skill: Applied
53) Rent controls, which allow landlords to pick and choose their tenants, make it easier for
students to find good apartments.
Answer: FALSE
Skill: Applied
54) Rent controls, which allow landlords to pick and choose their tenants, make it harder for
students to find good apartments.
Answer: TRUE
Skill: Applied
26
55) Rent controls give landlords the upper hand in dealing with tenants.
Answer: TRUE
Skill: Applied
56) Rent controls give tenants the upper hand in dealing with landlords.
Answer: FALSE
Skill: Applied
6.3 Do Minimum Wages Help The Working Poor? Price Floors
1) Minimum wage laws create a

A) price ceiling below the equilibrium wage.
B) price floor above the equilibrium wage.
C) price floor below the equilibrium wage.
D) market-clearing wage.
E) price ceiling above the equilibrium wage.
Answer: B
Skill: Recall
Objective: 6.3 Describe price floors and explain the unintended consequences of government
minimum wage laws.
2) Eliminating a minimum wage law is best for people who are

A) seeking employment.
B) paid less than the minimum.
C) retired.
D) working in minimum wage jobs.
E) paid more than the minimum.
Answer: A
Skill: Applied
minimum wage laws.
27
3) Minimum wages were introduced in the 20th century to help
A) the least vulnerable members of society.
B) unskilled and over-educated workers.
C) the most valuable members of society.
D) unskilled and uneducated workers.
E) skilled and educated workers.
Answer: D
Skill: Applied
minimum wage laws.
4) Statistics Canada defines unemployment as workers who are

A) 12-year old babysitters.
B) serving time in jail.
C) not working but willing and available to work.
D) injured and unable to work.
E) full-time students.
Answer: C
Skill: Recall
minimum wage laws.
5) Lowering the minimum wage creates many new jobs if labour

A) demand is inelastic.
B) supply is perfectly inelastic.
C) demand is elastic.
D) supply is inelastic.
E) supply is elastic.
Answer: C
Skill: Applied
minimum wage laws.
6) Raising the minimum wage results in large job losses if labour

A) supply is inelastic.
B) supply is perfectly inelastic.
C) demand is elastic.
D) supply is elastic.
E) demand is inelastic.
Answer: C
Skill: Applied
minimum wage laws.
28
7) Raising the minimum wage results in large job losses if
A) labour supply is inelastic.
B) businesses can easily substitute robots for workers.
C) labour supply is elastic.
D) labour demand is inelastic.
E) it is difficult for business to find substitutes for workers.
Answer: B
Skill: Applied
minimum wage laws.
8) A minimum wage set below the market-clearing wage

A) is not efficient.
B) results in unemployment.
C) might make some workers better off.
D) creates a surplus of jobs.
E) has no effect.
Answer: E
Skill: Applied
minimum wage laws.
9) A new minimum wage law best helps the working poor when
A) demand for unskilled labour is inelastic.
B) gains from workers who remain employed are greater than the lost income of workers who
lose their jobs.
C) businesses have few substitutes for unskilled labour.
D) all of the above are true.
E) none of the above are true.
Answer: D
Skill: Applied
minimum wage laws.
29
10) A new minimum wage law best helps the working poor when
A) demand for unskilled labour is elastic.
lose their jobs.
C) businesses have many substitutes for unskilled labour.
Answer: B
Skill: Applied
minimum wage laws.
11) A new minimum wage law most hurts the working poor when
A) demand for unskilled labour is inelastic.
lose their jobs.
C) businesses have many substitutes for unskilled labour.
Answer: C
Skill: Applied
minimum wage laws.
12) A new minimum wage law most hurts the working poor when
A) demand for unskilled labour is elastic.
lose their jobs.
C) businesses have few substitutes for unskilled labour.
Answer: A
Skill: Applied
minimum wage laws.
30
13) Minimum wage laws are inefficient because the minimum wage does not reflect the
A) differences between men and women.
B) opportunity cost of employers.
C) marginal benefit of working.
D) marginal benefit of being an employer.
E) opportunity cost of workers.
Answer: E
Skill: Applied
minimum wage laws.
14) When government sets the hourly minimum wage at $8, 4,000 workers are unemployed.
Suppose the demand for labour increases so that quantity supplied equals quantity demanded of
labour at a $10 wage. The new equilibrium wage rate is
A) $10 and there is no unemployment.
B) $10 and there is a surplus of labour.
C) $8 and there is a surplus of labour.
D) $8 and there is no unemployment.
E) $8 and there is unemployment.
Answer: A
Skill: Applied
minimum wage laws.
31
Figure 6.3.1
15) Figure 6.3.1 gives the supply and demand schedules for teenage labour in Moncton, New
Brunswick. If this labour market is not regulated by government,
A) there is no teenage unemployment and the hourly wage rate is $12.
B) there is no teenage unemployment and the hourly wage rate is $10.
C) teenage unemployment is 400 hours and the hourly wage rate is $12.
D) teenage unemployment is 400 hours and the hourly wage rate is $10.
E) the minimum hourly wage is $14.
Answer: B
Skill: Applied
minimum wage laws.
Brunswick. The Moncton City Council sets a minimum wage of $12 per hour. Teenage
unemployment is
A) 800 hours.
B) 600 hours.
C) 400 hours.
D) 200 hours.
E) zero hours.
Answer: C
Skill: Applied
minimum wage laws.
32
Brunswick. The Moncton City Council sets a minimum wage of $8 per hour. Teenage
unemployment is
A) 800 hours.
B) 600 hours.
C) 400 hours.
D) 200 hours.
E) zero hours.
Answer: E
Skill: Applied
minimum wage laws.
Brunswick. Moncton City Council sets a minimum wage of $12 per hour. Suppose a new fast
food restaurant opens and increases the quantity demanded of teenage labour by 400 hours per
week at each wage rate. The result is a hourly wage rate of
A) $14 and zero teenage unemployment.
B) $12 and zero teenage unemployment.
C) $12 and 400 hours of teenage unemployment.
D) $14 and 400 hours of teenage unemployment.
E) none of the above.
Answer: B
Skill: Applied
minimum wage laws.
Brunswick. The Moncton City Council sets a minimum wage of $12 per hour. Suppose a new
fast food restaurant opens and increases the quantity demanded of teenage labour by 400 hours
per week at each wage rate. The result is teenage employment of
A) 1,000 hours per week and an hourly wage rate of $10.
B) 1,000 hours per week and an hourly wage rate of $14.
C) 800 hours per week and an hourly wage rate of $12.
D) 600 hours per week and an hourly wage rate of $14.
E) 400 hours per week and an hourly wage rate of $14.
Answer: C
Skill: Applied
minimum wage laws.
33
Figure 6.3.2
20) Look at the labour market in Figure 6.3.2. What is unemployment (in hours per day) if the
minimum wage is set at $6 per hour?
A) 70
B) 50
C) 30
D) 20
E) zero
Answer: E
Skill: Applied
minimum wage laws.
21) Look at the labour market in Figure 6.3.2. What is unemployment (in hours per day) if the
minimum wage is set at $14 per hour?
A) 40
B) 30
C) 20
D) 10
E) zero
Answer: B
Skill: Applied
minimum wage laws.
22) Look at the labour market in Figure 6.3.2. What is the hourly equilibrium wage rate in an
unregulated market?
A) $10
B) $11
C) $12
D) $13
E) $14
Answer: B
Skill: Applied
minimum wage laws.
34
Figure 6.3.3
23) Look at labour market in Figure 6.3.3. What is the equilibrium wage rate if the market is
unregulated?
A) $2
B) $3
C) $4
D) $5
E) $30
Answer: C
Skill: Applied
minimum wage laws.
24) Look at labour market in Figure 6.3.3. If the minimum wage is set at $2, what is the level of
unemployment?
A) 50
B) 40
C) 20
D) 10
E) 0
Answer: E
Skill: Applied
minimum wage laws.
35
25) Look at labour market in Figure 6.3.3. If the minimum wage is set at $6, what is the level of
unemployment?
A) 50
B) 40
C) 20
D) 10
E) 0
Answer: B
Skill: Applied
minimum wage laws.
26) Minimum wages are a form of price floor.

Answer: TRUE
Skill: Recall
minimum wage laws.
27) Minimum wages are a form of price ceiling.

Answer: FALSE
Skill: Recall
minimum wage laws.
28) A "living wage" allows an individual living in a Canadian city to live below the poverty line.
Answer: FALSE
Skill: Recall
minimum wage laws.
29) A "living wage" policy is an example of a price ceiling.

Answer: FALSE
Skill: Applied
minimum wage laws.
30) A minimum wage set below the market-clearing wage is irrelevant.

Answer: TRUE
Skill: Recall
minimum wage laws.
36
31) The first minimum wage laws in Canada were passed in 1918.
Answer: TRUE
Skill: Recall
minimum wage laws.
32) Gender differences in minimum wages ended in Canada in 1974.

Answer: TRUE
Skill: Recall
minimum wage laws.
33) Gender differences in minimum wages ended in Canada in 1918.

Answer: FALSE
Skill: Recall
minimum wage laws.
34) Labour markets are an example of output markets.

Answer: FALSE
Skill: Recall
minimum wage laws.
35) Raising the minimum wage increases unemployment.

Answer: TRUE
Skill: Applied
minimum wage laws.
36) Minimum wage laws force employers to hire workers.

Answer: FALSE
Skill: Applied
minimum wage laws.
37
37) With a minimum wage law, the quantity of labour supplied is greater than the quantity of
labour demanded.
Answer: TRUE
Skill: Recall
minimum wage laws.
38) If the demand for labour is very elastic, a rise in the minimum wage results in large job
losses.
Answer: TRUE
Skill: Applied
minimum wage laws.
39) If the demand for labour is very inelastic, a rise in the minimum wage results in large job
losses.
Answer: FALSE
Skill: Applied
minimum wage laws.
40) Without a minimum wage law, businesses will not pay their workers.
Answer: FALSE
Skill: Applied
minimum wage laws.
41) Paying subsidies to persons earning low wages is better economic policy than minimum
wages because markets can continue to flexibly coordinate the smart choices of consumers and
businesses.
Answer: TRUE
Skill: Applied
minimum wage laws.
38
42) Providing training to unskilled workers is better economic policy than minimum wages
because markets can continue to flexibly coordinate the smart choices of consumers and
businesses.
Answer: TRUE
Skill: Applied
minimum wage laws.
43) Training programs and wage supplements are better economic policies than minimum wages
because they have no opportunity costs.
Answer: FALSE
Skill: Applied
minimum wage laws.
6.4 When Markets Work Well, Are They Fair? Trade-Offs Between Efficiency and Equity
1) An efficient market outcome does all of the following except

A) coordinate smart choices of businesses and consumers.
B) price output to just cover all opportunity costs of production.
C) deliver output to those most willing and able to pay.
D) exclude those unwilling to pay but able to pay.
E) deliver output to those willing to pay but unable to pay.
Answer: E
Skill: Applied
Objective: 6.4 Explain government policy trade-offs between efficient and equitable outcomes.
2) When the fee paid to doctors for a medical service is set below the equilibrium price, and
patients must pay for this service, we predict that
A) the price is above the doctor's marginal benefit.
B) only the rich can afford this service.
C) this service is over-provided.
D) the price is above the doctor's marginal opportunity cost.
E) there are shortages of this service.
Answer: E
Skill: Applied
39
3) When the fee paid to doctors for a medical service is set above the equilibrium price, and
patients must pay for this service, we predict that
A) this service is over-provided.
B) there are shortages of this service.
C) the price is above the doctor's marginal benefit.
D) everyone wants the service.
E) the price is below the doctor's marginal opportunity cost.
Answer: A
Skill: Applied
4) In the U.S. health care system, priority treatment goes to the patients who are
A) willing and able to pay the most.
B) willing and able to beg the nurse in the hospital emergency room.
C) most in need of the treatment.
D) willing and able to wait the longest.
E) willing and able to yell the loudest.
Answer: A
Skill: Recall
5) Economists tend to
A) disagree more than they agree.
B) disagree about efficiency and agree about fairness.
C) disagree about efficiency and disagree about fairness.
D) agree about efficiency but disagree about fairness.
E) agree about efficiency and agree about fairness.
Answer: D
Skill: Applied
6) The market-clearing price is efficient because

A) the marginal benefit of sellers matches the marginal benefit of buyers.
B) all sellers have the same marginal costs.
C) the marginal cost of sellers matches the marginal cost of buyers.
D) all buyers have the same marginal costs.
E) the marginal cost of sellers matches the marginal benefit of buyers.
Answer: E
Skill: Applied
40
7) Market-driven health care generally
A) is more efficient than equitable health care.
B) provides good care to those who can afford it.
C) provides little care to those who cannot afford it.
D) has few waiting lists.
E) does all of the above.
Answer: E
Skill: Applied
8) When a market price allocates a scarce resource,

A) everyone in the economy can use the resource.
B) only those who show interest can use the resource.
C) willingness-to-pay is not an issue.
D) ability to pay for the resource is less important than willingness-to-pay.
E) only those who are willing and able to pay get the resource.
Answer: E
Skill: Applied
9) In an unregulated housing market with no rent ceiling,

A) scarce housing resources are allocated inefficiently.
B) scarce housing resources are allocated efficiently.
C) tenants pay a lower rent than in a market with an effective rent ceiling.
D) landlords receive a lower rent than in a market with an effective rent ceiling.
E) scarce housing resources are allocated equitably.
Answer: B
Skill: Applied
10) If the government introduces a ceiling on the fees that lawyers can charge, the outcome is
A) always inefficient.
B) inefficient when the ceiling is above the equilibrium fee.
C) efficient when the ceiling is above the equilibrium fee.
D) efficient when the ceiling is below the equilibrium fee.
E) always efficient.
Answer: C
Skill: Applied
41
11) Allocating products and services to those who are most willing and able to pay may not be
equitable.
Answer: TRUE
Skill: Recall
12) Rewarding businesses who sell at the lowest price is efficient, but it may not be equitable.
Answer: TRUE
Skill: Recall
13) When a consumer can afford to buy a product or service at the market-clearing price but
chooses not to, the market outcome is unfair.
Answer: FALSE
Skill: Applied
14) When a consumer cannot afford to buy a product or service even when the marginal benefit
is greater than the market-clearing price, the market outcome may be unfair.
Answer: TRUE
Skill: Applied
15) In an efficient market outcome, products and services go to people who are most willing and
able to pay the most.
Answer: TRUE
Skill: Recall
16) The opportunity cost of allowing markets to work well is sometimes inequality.
Answer: TRUE
Skill: Recall
17) An efficient market outcome is always equitable.

Answer: FALSE
Skill: Recall
42
18) In an efficient market outcome, prices just cover all opportunity costs of production and
consumers buy products and services providing the most bang per buck.
Answer: TRUE
Skill: Applied
19) In an equitable market outcome, those most willing and able to pay receive products and
services.
Answer: FALSE
Skill: Recall
20) An equitable market outcome is always efficient.

Answer: FALSE
Skill: Applied
21) Efficient market outcomes are always preferable to equitable outcomes.

Answer: FALSE
Skill: Applied
22) Equitable outcomes are always preferable to efficient market outcomes.

Answer: FALSE
Skill: Applied
23) Economics provides the key to choosing between efficient and equitable outcomes.
Answer: FALSE
Skill: Recall
24) The Canadian health care system gives equal access to all by setting the price paid by
citizens to zero. This system might be fair, but it isn't efficient because it creates shortages and
lineups.
Answer: TRUE
Skill: Recall
43
25) In the U.S. health care system, priority goes to those who are most able to pay. This is fair
but it isn't efficient.
Answer: FALSE
Skill: Recall
26) When health care has a zero price, some people will overuse health care services.
Answer: TRUE
Skill: Applied
27) If Canadian governments fix the price paid to doctors below the market-clearing price, there
is a shortage of medical services provided.
Answer: TRUE
Skill: Applied
28) Waiting lists are a quantity adjustment response to a shortage.

Answer: TRUE
Skill: Applied
29) Quantity supplied usually exceeds quantity demanded in the Canadian health care market.
Answer: FALSE
Skill: Applied
30) In the private U.S. health care market, those unable to pay do not receive health care
services.
Answer: TRUE
Skill: Recall
44
6.5 Choosing Between Efficiency and Equity: What Economics Can and Cannot Do for You
1) You should choose your political positions and social goals

A) to offend as many people as you can.
B) on the basis of economics.
C) to reflect your values.
D) to frighten your parents.
E) to take the high road.
Answer: C
Skill: Applied
Objective: 6.5 Describe two equity concepts and how to use positive economic thinking to
achieve a normative policy goal.
2) Which statement is normative?

A) When a price floor is increased, quantities will adjust.
B) When a price ceiling is decreased, quantities will adjust.
C) Economists should not make positive statements.
D) When workers are not equally productive, marginal opportunity costs increase as a business
produces more.
E) When activities are not equally valuable, marginal opportunity costs of providing labour
increases as you work more.
Answer: C
Skill: Applied
3) Which statement is positive?

A) Senior citizens should be paid less than students.
B) Only people with jobs should be allowed to vote.
C) Senior citizens should be paid more than students.
D) People should be paid a living wage.
E) Increasing the minimum wage results in unemployment.
Answer: E
Skill: Applied
45
4) Which statement is normative?
A) Health care should be free to the poor.
B) Health care costs more than dental care.
C) People who see their doctor at least once a year live longer.
D) Health care in America is less expensive than in Canada.
E) Cats have nine lives.
Answer: A
Skill: Applied

A) Wayne Gretzky has more points than any other hockey player.
B) Ian Fleming writes good books.
C) Gordie Howe is the greatest hockey player of all time.
D) Bobby Orr is the greatest hockey player of all time.
E) Avi Cohen ought to stick to economics.
Answer: A
Skill: Applied

A) Governments should provide free housing.
B) High interest rates are bad.
C) Positive statements ought to be testable.
D) Rent controls create housing shortages.
E) Government should not interfere in private markets.
Answer: D
Skill: Applied
7) A left-leaning politician probably

A) does not think like an economist.
B) thinks equality of opportunity is more important than equality of outcomes.
C) is more concerned with efficiency than with equity.
D) is left-handed.
E) is none of the above.
Answer: E
Skill: Applied
46
8) A left-leaning politician probably
B) thinks equality of outcomes is more important than equality of opportunity.
D) is left-handed.
Answer: B
Skill: Applied
9) A right-leaning politician probably

B) thinks equality of opportunity is more important than equality of outcomes.
C) is more concerned with equity than with efficiency.
D) is right-handed.
Answer: B
Skill: Applied
10) A right-leaning politician probably

B) thinks equality of outcomes is more important than equality of opportunity.
D) is right-handed.
Answer: C
Skill: Applied
11) "Does the Canadian health care system allocate resources efficiently?" is a normative
question.
Answer: FALSE
Skill: Applied
47
12) "Does the Canadian health care system allocate resources equitably?" is a normative
question.
Answer: TRUE
Skill: Applied
13) "Should the U.S. health care system be made fairer to the poor?" is a normative question.
Answer: TRUE
Skill: Applied
14) Policy choices depend on the relative value placed on efficiency versus equity.
Answer: TRUE
Skill: Applied
15) Deciding between the importance of equal opportunities or equal outcomes is a positive
question.
Answer: FALSE
Skill: Applied
16) Deciding between the importance of equal opportunities or equal outcomes is a normative
question.
Answer: TRUE
Skill: Applied
17) A left-leaning politician probably believes that equality of opportunity is more important that
equality of outcomes.
Answer: FALSE
Skill: Applied
48
18) A right-leaning politician probably believes that equality of opportunity is more important
that equality of outcomes.
Answer: TRUE
Skill: Applied
19) Economic thinking is about finding the most effective and efficient means to achieving the
normative ends you value most.
Answer: TRUE
Skill: Applied
20) "What is the most efficient policy for helping the homeless find housing?" is a normative
question.
Answer: FALSE
Skill: Applied
21) "What is the most effective policy for helping the working poor?" is a positive question.
Answer: TRUE
Skill: Applied
22) "Will a rise in the minimum wage increase the well-being of workers?" is a normative
question.
Answer: FALSE
Skill: Applied
49

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Choices for You Canadian 2nd Edition Cohen

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Microeconomics for Life: Smart Choices for You, 2e (Cohen)

6.1 Do Prices or Quantities Adjust? Unintended Consequences of Government Policies

5) When prices are fixed above market-clearing levels,

6) When prices are fixed above the equilibrium price,

7) When prices are fixed below market-clearing levels,

9) When governments fix prices below the equilibrium price,

10) When governments fix prices below the equilibrium price,

12) When governments fix prices below market-clearing levels,

13) When governments fix prices above the equilibrium price,

14) When governments fix prices above the equilibrium price,

16) When governments fix prices above market-clearing levels,

17) A price ceiling set below the equilibrium price results in

19) A price floor set below the equilibrium price results in

20) A price floor set above the equilibrium price results in

34) Waiting lists are a form of quantity adjustment.

35) Unwanted inventory changes are a form of quantity adjustment.

36) Key money is a form of quantity adjustment.

5) Rent controls create a

6) Rent controls create a(n)

7) If rent controls are eliminated,

15) Eliminating rent controls results in large increases in rents if

18) A rent ceiling set above the market-clearing rent

19) Which is not an outcome of rent ceilings?

41) A rent ceiling set above the market-clearing rent is irrelevant.

42) A rent ceiling set below the market-clearing rent is irrelevant.

44) Housing shortages are an unintended consequence of rent controls.

45) Housing surpluses are an unintended consequence of rent controls.

6.3 Do Minimum Wages Help The Working Poor? Price Floors

1) Minimum wage laws create a

2) Eliminating a minimum wage law is best for people who are

4) Statistics Canada defines unemployment as workers who are

5) Lowering the minimum wage creates many new jobs if labour

6) Raising the minimum wage results in large job losses if labour

8) A minimum wage set below the market-clearing wage

26) Minimum wages are a form of price floor.

27) Minimum wages are a form of price ceiling.

29) A "living wage" policy is an example of a price ceiling.

30) A minimum wage set below the market-clearing wage is irrelevant.

32) Gender differences in minimum wages ended in Canada in 1974.

33) Gender differences in minimum wages ended in Canada in 1918.

34) Labour markets are an example of output markets.

35) Raising the minimum wage increases unemployment.

36) Minimum wage laws force employers to hire workers.

1) An efficient market outcome does all of the following except

6) The market-clearing price is efficient because

8) When a market price allocates a scarce resource,

9) In an unregulated housing market with no rent ceiling,

17) An efficient market outcome is always equitable.

20) An equitable market outcome is always efficient.

21) Efficient market outcomes are always preferable to equitable outcomes.

22) Equitable outcomes are always preferable to efficient market outcomes.

28) Waiting lists are a quantity adjustment response to a shortage.

1) You should choose your political positions and social goals

2) Which statement is normative?

3) Which statement is positive?

5) Which statement is positive?

6) Which statement is positive?

7) A left-leaning politician probably

9) A right-leaning politician probably

10) A right-leaning politician probably