Question

1. Roland is the president of the United States. In an attempt to make prescription drug prices cheaper, he has imposed a binding price ceiling on drugs. What would he expect his critics to say?

A. the binding price ceiling will encourage companies to overproduce drugs and will result in waste.

B. the binding price will discourage patients from obtaining the drugs they need.

C. the binding price ceiling will increase the likelihood that consumers will obtain needed drugs on the black market.

2. you would expect there to be many customers for a black market good when the opportunity cost of finding the good under a

A. binding price floor is low

B. nonbinding price ceiling is high

C. binding price ceiling is low

D. binding price floor is high

E. binding price ceiling is high

3. what will happen in a market where a binding price ceiling is removed?

A. buyers will find the good more difficult to obtain in the legal market

B. there will be downward pressure on the price in the legal market

C. Sellers will face a reduced incentive to sell the product.

D. there will be increased pressure to buy and sell the good on the black market

E. the products sold will improve in quality and become more plentiful.

4. Gross domestic product (GDP) is not a good measure of the

A. output produced by people in the country

B. overall health of the economy.

C. average living standards of people in the country when adjusted for population

D. income inequality that exists between people in-country

E. total income earned by all people in the country

5. Nominal gross domestic products (GDP) is equal to

A. current price*base year output

B. current output/ base year prices

C. base prices * base year output

D. current price * current output

E. base year prices / current output

Answer 1

1. Roland is the president of the United States. In an attempt to make prescription drug prices cheaper, he has imposed a binding price ceiling on drugs. What would he expect his critics to say?

Option C. the binding price ceiling will increase the likelihood that consumers will obtain needed drugs on the black market.

Binding price ceiling means that the price imposed is less than the equilibrium price in the market. So, when there is a binding price ceiling, there is a shortage of the product as the demand would exceed the quantity supplied. Due to the shortage, there would be a likelihood of a black market arising where consumers have to go to obtain the needed drugs.

2. You would expect there to be many customers for a black market good when the opportunity cost of finding the good under a

Option E. binding price ceiling is high

Black market arises in case of a binding price ceiling only because there is a shortage of that good in the binding price ceiling market. So, there would always be some consumers who would be ready to pay a larger price for that good in the black market especially when the opportunity cost of finding that good is high that is it would cost them more if they had to search for finding the good.

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

Option E. the products sold will improve in quality and become more plentiful.

When the binding price ceiling is removed, the price would increase and with that the sellers would get the incentive to sell more of their products and also improve their quality.

4. Gross domestic product (GDP) is not a good measure of the

Option C. average living standards of people in the country when adjusted for population.

Gross Domestic Product only measures the total amount of goods and services produced within the domestic boundary of a country and it does not adjust for population. So, it is only a total measure and not an in-dept measure of how people's living standards have improved.

5. Nominal gross domestic products (GDP) is equal to

Option D. current price * current output

Nominal gross domestic product (GDP) takes the value of the goods and services according to the current price and does not account for inflation. That is why, it is calculated as current price multiplied by current output.