Review Question Index Last revision: 08/24/2006 08:56 AM

Review Questions for Chapter 7 of Parkin's Microeconomics

1. What happens to the rent and to the quantity of housing available if an earthquake reduces the supply of housing? Trace the evolution of the rent and the quantity of housing rented over time.

2. What is a rent ceiling? In the situation described in question 1, how will things be different if a rent ceiling is imposed?

3. Describe what happens to the price and quantity in a housing market in which there is an increase in supply. Trace the evolution of the price and quantity in the market over time.

4. Describe what happens to the wage rate and quantity of low-skilled labor employed when there is a decrease in demand for labor. Trace the evolution of the wage rate and employment over time.

5. What is a price floor? In the situation described in question 4, how are things different if a minimum wage is introduced?

6. How does the imposition of the sales tax on a good influence the supply of and demand for that good? How does it influence the price of the good and the quantity bought?

7. How does a prohibition of the sale of a good affect the demand for and supply of the good? How does it affect the price of the good and the quantity bought?

8. How does a prohibition of the consumption of a good affect the demand for and supply of the good? How does it affect the price of the good and the quantity bought?

9. Explain the alternative ways in which the consumption of harmful drugs can be controlled. What are the arguments for and against each method?

10. Why do farm revenues fluctuate?

11. Do farm revenues increase or decrease when there is a bumper crop and there are no inventories? Why?

12. Explain why speculation can stabilize the price of a storable commodity but does not stabilize the revenues of the producers of such a commodity.

Suggested answers (I recommend that you write down your own answer before looking at mine.)