Chapter 2 True or False Quiz

. A price ceiling imposed above the market equilibrium price will result in a shortage of the product.

. When a rent control is imposed below the current market equilibrium rental rate, the market is likely to develop a shortage of rental housing.

. A rent control set below the market equilibrium price will result in a reduction of rental units supplied in the market, assuming the supply is consistent with the law of supply.

. Historically the US government has employed various types of programs to subsidize US agricultural sector.

. Regardless of whether the legal tax incidence (who is supposed to collect and remit the tax to the taxing government) of a per-unit sales tax is on the seller or the buyer, the outcome on the quantity traded will be the same in each case.

. Excise taxes can be used to generate revenue to the government, but also to alter the behavior of consumers and discourage consumption of certain products.

. If both, the supply and the demand increase at the same time, the equilibrium price will definitely increase.

. Assume that the production of corn and wheat utilize the same resources (substitutes in production). If the price of corn increases, then we can expect the price of wheat to also increase, all else held constant.

. An upward slopped supply curve is consistent with the law of supply.

. The equilibrium price is the price level at which there is no surplus or shortage in the market.

. A market can be defined as an institutional arrangement under which buyers and sellers can exchange goods and services for a mutually agreeable price.

. The ceteris paribus assumption means that all other relevant factors remain unchanged.

. Operating system software such as Windows is a complement product to computer processors. If the price of computer processors declines, then we should expect the demand for operating system software to decrease.

. A given supply curve assumes that input prices, production technology, and any other relevant factors except the price of the product, are held constant

. Car manufactures use many commodities in their production process. If prices of those commodities increase, then we should expect the supply curve to shift downwards (to the right).

. In the last few years we observed significant volatility in the price of gasoline. If we assume that the demand for gasoline is not price sensitive, then a significant rise in the price of gasoline will increase spending on gasoline and increase spending on inferior goods.

. The law of supply arises from the fact that the marginal costs are rising with the level of output

. A decline in input prices will cause the quantity demanded in the output market to increase

. If buyers and sellers of homes start to expect inflation in housing values, then both, the current demand and the supply functions will increase

. When the demand decreases while the supply increases, the market equilibrium price declines

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