Econ b251 Module 6 and Econ b251
Module 7 Test Questions All Answered
Correct 2025-2026 Updated.
in unrestricted (free or unregulated) perfectly competitive markets, rationing is . . . - Answer
efficient (not always fair)
price controls - Answer price restrictions placed and enforced by the government; government
set minimum or maximum price
price ceiling - Answer Legal maximum. limit on how high a price is charged for a good/service;
set below equilibrium price (see graph in notes). A rent ceiling decreases quantity of rental
housing available, shortage. People use resources in search activity which decreases producer
and consumer surplus. Causes a deadweight loss.
goal of price ceiling - Answer make good more affordable (ex. rent ceiling to limit amount
charged by landlord) Prevents the price from rising too high. Creates a fair price below the
unfairly high equilibrium price.
effect of price ceiling - Answer shortage, black market, increased search activity, deadweight
loss (underproduction)
black market (price ceiling) - Answer exchange of good/service at a price above the price
ceiling or below the government imposed price control.
Ticket scalping - Answer is the act of reselling tickets for admission to events (example of black
market)
Search activity - Answer The time and effort (cost) it takes to complete a transaction with
another market participant.
cost of price ceiling - Answer search activity + deadweight loss
price floor - Answer limit on how low a price is charged for a good or service; set above
, minimum wage - Answer legal minimum amount employers must pay their employees; price
floor in labor markets. When the government enacts a minimum wage above the actual
equilibrium wage, the quantity demanded of labor by firms is less than the quantity supplied of
labor by workers. The higher the minimum wage the more search activity there is for less
available jobs which causes a surplus of labor or unemployment.
Living wage - Answer a wage that is high enough to maintain a normal standard of living to
cover food, shelter, and other necessities.
effects of price floor - Answer surplus/overproduction (unemployment), increase in search
activity, deadweight loss, overproduction, opportunity cost for workers and firms increase
cost of price floor - Answer search activity + deadweight loss
living wage - Answer minimum wage based on the specific costs of living in certain cities or
states (usually much higher than minimum wage)
price supports - Answer minimum legal price a seller may charge, typically above equilibrium
(commonly used in agriculture and government purchases the surplus at the higher price)
why impose taxes - Answer markets fail to produce socially desirable outcomes and to
generate revenue for the government. Taxes create efficiency.
tax incidence - Answer the portion of tax burden on someone (just because taxes are placed
on consumer doesn't mean supplier doesn't have to pay or vise versa). Distribution of tax.
tax on sellers - Answer shifts the S curve up by the amount of the tax (usually demander ends
up paying some of the tax) (Price received after the tax - price received before the tax) / tax )
tax on buyers - Answer shifts the D curve down by the amount of the tax (usually supplier
ends up paying some of the tax) (price paid after tax - price paid before tax) / tax)
the more inelastic the demand . . . who pays the larger proportion of the tax - Answer buyers
the more inelastic the supply . . . who pays the larger portion of the tax - Answer sellers
Module 7 Test Questions All Answered
Correct 2025-2026 Updated.
in unrestricted (free or unregulated) perfectly competitive markets, rationing is . . . - Answer
efficient (not always fair)
price controls - Answer price restrictions placed and enforced by the government; government
set minimum or maximum price
price ceiling - Answer Legal maximum. limit on how high a price is charged for a good/service;
set below equilibrium price (see graph in notes). A rent ceiling decreases quantity of rental
housing available, shortage. People use resources in search activity which decreases producer
and consumer surplus. Causes a deadweight loss.
goal of price ceiling - Answer make good more affordable (ex. rent ceiling to limit amount
charged by landlord) Prevents the price from rising too high. Creates a fair price below the
unfairly high equilibrium price.
effect of price ceiling - Answer shortage, black market, increased search activity, deadweight
loss (underproduction)
black market (price ceiling) - Answer exchange of good/service at a price above the price
ceiling or below the government imposed price control.
Ticket scalping - Answer is the act of reselling tickets for admission to events (example of black
market)
Search activity - Answer The time and effort (cost) it takes to complete a transaction with
another market participant.
cost of price ceiling - Answer search activity + deadweight loss
price floor - Answer limit on how low a price is charged for a good or service; set above
, minimum wage - Answer legal minimum amount employers must pay their employees; price
floor in labor markets. When the government enacts a minimum wage above the actual
equilibrium wage, the quantity demanded of labor by firms is less than the quantity supplied of
labor by workers. The higher the minimum wage the more search activity there is for less
available jobs which causes a surplus of labor or unemployment.
Living wage - Answer a wage that is high enough to maintain a normal standard of living to
cover food, shelter, and other necessities.
effects of price floor - Answer surplus/overproduction (unemployment), increase in search
activity, deadweight loss, overproduction, opportunity cost for workers and firms increase
cost of price floor - Answer search activity + deadweight loss
living wage - Answer minimum wage based on the specific costs of living in certain cities or
states (usually much higher than minimum wage)
price supports - Answer minimum legal price a seller may charge, typically above equilibrium
(commonly used in agriculture and government purchases the surplus at the higher price)
why impose taxes - Answer markets fail to produce socially desirable outcomes and to
generate revenue for the government. Taxes create efficiency.
tax incidence - Answer the portion of tax burden on someone (just because taxes are placed
on consumer doesn't mean supplier doesn't have to pay or vise versa). Distribution of tax.
tax on sellers - Answer shifts the S curve up by the amount of the tax (usually demander ends
up paying some of the tax) (Price received after the tax - price received before the tax) / tax )
tax on buyers - Answer shifts the D curve down by the amount of the tax (usually supplier
ends up paying some of the tax) (price paid after tax - price paid before tax) / tax)
the more inelastic the demand . . . who pays the larger proportion of the tax - Answer buyers
the more inelastic the supply . . . who pays the larger portion of the tax - Answer sellers
