Chapter 6 MCQ

Question 1

Fifty-six percent of young workers in Canada live at home with their parents. More young adults are remaining home or are “doubling up” in apartments. Doubling up is a quantity adjustment by tenants in the rental house market. T  F

Answer 1

True. Change in quantity of tenants with no change in prices (rents).

Question 2

The following statement — with which 93 percent of economists from the AmericanEconomic Association were in agreement —is a positive statement. T  F
A ceiling on rents reduces the quality and quantity of housing.

Answer 2

True. Can check if true by looking at what actually happens to available quantity and quality of rentals when rent ceilings introduced.

Question 3

The following statement by the Sheldon Chumir Foundation for Ethics in Leadershipis a positive statement. T  F
Calgary’s homeless population grew 740 percent between 1994 and 2006.

Answer 3

True. Empirical statement that can be checked against facts.

Question 4

The following statement by the Manhattan Institute is a positive statement. T  F
Examining investment in previously rent-controlled buildings, we find that the removal of rent controls increased the construction of new units and the renovation and repair of existing ones by approximately 20 percent over what would have been the case in the absence of decontrol.

Answer 4

True. Statement about facts that can be checked.

Question 5

Rent ceilings are usually applied to only part of the market. Tenants in the controlled markethold on to their apartments, forcing everyoneelse to shop in the more expensive uncontrolled market. In New York, 88 percent of tenants livingin rent-controlled apartments have not moved inmore than 25 years. According to demand andsupply analysis, rental prices in the uncontrolled market will be lower as a result of a rent ceilingin the controlled market. T  F

Answer 5

False. Unsatisfied demand from the controlled market spills over to the uncontrolled market, pushing rent levels there even higher.

Question 6

The following statement by the Organisation for Economic Co-operation and Development(OECD) is a positive statement. T  F
A moderate minimum wage is generally not a problem.

Answer 6

False. Statement cannot be evaluated as true/false because a value judgment is necessary to define what is a problem.

Question 7

The following statement by the Arthurs Commission on Canadian federal labourstandards is a positive statement. T  F
The government should accept the principle that no Canadian worker should work full time for a year and still live in poverty.

Answer 7

False. The word should indicates a value judgment.

Question 8

The following statement — with which 46 percent of economists from the AmericanEconomic Association were in agreement(27 percent disagreed) — is a positive statement. T  F
A minimum wage increases unemployment among young and unskilled workers.

Answer 8

True. Effect on young and unskilled can be measured.

Question 9

There is evidence that minimum wage laws significantly increase teen unemployment, slightly increase young adults’ unemployment, and have no impact on employment for workersaged 25 or older. This suggests that elasticity ofdemand for labour is highest for workers aged 25 or older. T  F

Answer 9

False. Elasticity of demand for teen labour is highest; zero elasticity of demand for labour over 25 years old.

Question 10

Canadian researchers found that the benefits of minimum wages go primarily to individualsin families that are less well off than the average.This suggests a minimum wage would reducewage inequality and increase equity. T  F

Answer 10

True. Wage inequality can be measured.

Question 11

Suppose you just graduated and your provincial government has raised its minimumwage from $11 to $13. Assuming you were notworking before, this would increase yourincentive to look for work. However, you maybe less likely to find work because businessesare now more likely to cut back on hiring workersin this wage range. T  F

Answer 11

True. Higher wage increases quantity of labour supplied and decreases quantity demanded by business.

Question 12

The Canadian Medical Association found 40 percent of Canadians grade their health-caresystem as a “C” or worse, partly due tounhappiness with long waiting times.Therefore, longer waiting times are a trade-offthat Canadians make in order to have a more efficient health-care system. T  F

Answer 12

False. Longer waiting times are a trade-off Canadians make for a more equitable health care system that does not discriminate on the basis of ability to pay.

Question 13

The following statement by The Center for American Progress is a positive statement. T  F
Americans who were poor as children — and there are now 37 million of them — are much more likely than other citizens to commit crimes, to need more health care, and to be less productive in the workforce.

Answer 13

True. Crime, health care, and productivity can be measured.

Question 14

The following statement by many student associations across Canada is a positivestatement. T  F
Tuition fees should be reduced.

Answer 14

False. Statement cannot be evaluated as true/false because it is a value judgment.

Question 15

Canada’s progressive income tax system, which requires those who earn more to paya higher percentage of their income to taxes, is based on a principle of equity. T  F

Answer 15

True. Equity of outcomes.

Question 16

In 1973, oil price controls led to long gas lines and rationing at the pumps. The price controls were a

price ceiling, set above the market-clearing price.
price ceiling, set below the market-clearing price.
price floor, set above the market-clearing price.
price floor, set below the market-clearing price.

Answer 16

b) Price ceiling below equilibrium price creates shortage with quantity demanded greater than quantity supplied.

Question 17

if the government set gas prices above the market-clearing price,

this would be a price floor.

gasoline suppliers would respond to the lower-than-market-clearing price by decreasing quantity supplied.

gasoline consumers would respond to the lower-than-market-clearing price by increasing quantity demanded.

this would result in long line-ups at the pumps.

Answer 17

a) Government-set price prevents price from falling to equilibrium price and creates surplus.

Question 18

Most of the employment impact of minimum wages does not come from businesses terminating workers whose wages now rise. Rather, the impact is businesses hiring fewer low-wage workers in the future. This response, or quantity adjustment, occurs because when wages rise, businesses

increase supply.
decrease quantity supplied.
go out of business.
search for cheaper input substitutes.

Answer 18

d) Businesses may immediately decrease supply from this rise in the price of an input. With time, find cheaper substitutes for labour.

Question 19

Rent ceilings imposed by governments

keep rental prices below the market-clearing price.

keep rental prices above the market-clearing price.

keep rental prices equal to the market-clearing price.

increase the quantity of rental housing.

Answer 19

a) Rent controls are only effective if price is set below the equilibrium price.

Question 20

Rent ceilings will

reduce the quantity of private rental construction.

reduce the quantity of existing rental units.

lower the quality of existing rental units.

all of the above

Answer 20

d) Create incentives to reduce quantity and quality of rental units.

Question 21

After rent controls were imposed, the supply of apartments in Winnipeg declined between 1998 and 2005 from 54 924 units to 53 046. Which of the following effects on Winnipeg’s rental housing market are consistent with economic thinking?

No affordable units were added by the private sector for years, and many existing units were withdrawn from the market.

Subsidized public housing programs have been the only source of new units in the low-to-medium price range.

Maintenance expenses fell, decreasing the quality of rental housing.

All of the above.

Answer 21

d) Rent controls reduced the quantity and quality of private housing.

Question 22

According to the Frontier Centre for Public Policy, “The most recent information on apartment rents and vacancy rates on the Prairies provides sufficient evidence that the best friend of tenants is the free market: Saskatchewan, with no controls, enjoys lower rents and substantially more supply. It is time to learn from Saskatchewan and end rent control in Manitoba.” If rent controls were removed, which of the following would occur?

Prices would fall.

Shortages would increase.

Supply would increase.

All of the above.

Answer 22

c) As rents rise, quantity supplied increases first and as new housing is built, supply also increases.

Question 23

In Canada, some provinces relaxed rent controls by permitting landlords to charge market rents when the original occupants move out. This provides

tenants with an incentive to stay in their apartments as long as possible.

landlords with an incentive to let the quality of existing apartments deteriorate.

governments with an incentive to pass strong anti-eviction laws so that landlords cannot remove current tenants without justified cause.

all of the above.

Answer 23

d) Unintended consequences of law.

Question 24

Ontario built about 27 000 apartment units per year in the six years before rent ceilings were introduced in 1974, and that dropped to around 4200 units per year after rent ceilings were introduced. Before rent ceilings were introduced in Ontario, the provincial government helped subsidize 27 percent of all rental units; by the early 1990s, it was more than 75 percent. This demonstrates that rent ceilings

create shortages of housing.

are costly for governments.

reduce incentives for private-sector investment.

do all of the above.

Answer 24

d) Rent ceilings reduce the quantity and quality of private-sector housing.

Question 25

A price floor set below the equilibrium price results in

excess supply.
excess demand.
the equilibrium price.
an increase in supply.

Answer 25

c) Price floor prevents prices from falling, but allows prices to rise. With quantity demanded greater than quantity supplied, price will rise to equilibrium price.

Question 26

Raising the minimum wage may have limited impact on reducing overall poverty rates because

many minimum-wage workers are young people or earners who live in families that do not fall below the poverty line.

many individuals who are in poverty are not working.

raising the minimum wage is still not enough to help workers working part-year or part-time out of poverty.

all of the above.

Answer 26

d) Minimum wage is already below the poverty line.

Question 27

In markets without any government interaction, the question of who gets an apartment is decided by who is

most willing to pay.
most able to pay.
most willing and able to pay.
most willing and able to dance.

Answer 27

c) For demand, must be willing and able.

Question 28

Which is a positive (empirical) statement?

People who work for minimum wage should be able to feed their families.

The minimum wage level should meet standards where, in a just society, individuals working full time are not in poverty.

Minimum wage increases can significantly improve the lives of low-income workers and their families, without the adverse effects that critics claim.

All of the above.

Answer 28

c) Can measure improvement in income and effect on unemployment.

Question 29

Which statement is not normative?

Something should be done about the homeless.

Rent ceilings would reduce the number of homeless people.

Rent ceilings should be introduced to reduce the number of homeless people.

All of the above.

Answer 29

b) Positive statement with prediction that can be tested against data.

Question 30

In 1997, Canadian family incomes near the top of the income distribution were four times higher than family incomes near the bottom of the distribution. In the United States, the ratio is about five to one, while in Sweden and Finland the ratio is about three to one. The country with the most unequal distribution of income is

Canada.
the United States.
Sweden.
Finland.

Answer 30

b) Greatest inequality between top and bottom of income distribution