Question 1

In a market with a rent ceiling set below the equilibrium rent, the producer and consumer surplus
A)both increase.
B)both decrease but generally not to zero.
C)do not change.
D)are eliminated.
E)are both totally converted into deadweight loss.

Accepted Answer

In a market with a rent ceiling set below the equilibrium rent, the quantity demanded exceeds the quantity supplied, and so there will be a shortage. This shortage causes a decrease in both producer and consumer surplus, but generally not to zero. This is because producers are unable to charge the equilibrium price and so their revenue decreases, while consumers are able to enjoy lower prices but may not be able to find as much housing as they would like. The difference between the value that consumers place on the good and the cost of producing it (i.e. the surplus) is lost as a deadweight loss. Therefore, both surplus decrease but they are not converted into deadweight loss completely.

Question 2

Suppose the equilibrium rent in Boston is $1,500. A rent ceiling of $1,600 per month leads to
A)a surplus of apartments in Boston.
B)a shortage of apartments in Boston.
C)no change in the Boston apartment market.
D)fair prices in the Boston apartment market.
E)compared to the situation at the equilibrium rent, a decrease in the quantity of apartments demanded and an increase in the quantity of apartments supplied.

Accepted Answer

A rent ceiling set above the equilibrium rent does not affect the market because the market can still operate at the equilibrium price. The ceiling does not constrain the price to below what it would naturally settle at, so there is no change in the market dynamics.

Question 3

Black markets occur when price ceilings are imposed in a market. Which of the following explains why sellers participate in a black market?
A)Sellers are able to sell the product for a higher than legal price.
B)There are more buyers in the black market than in the legal market.
C)The demand is perfectly elastic in a black market.
D)There is no good reason why sellers participate in a black market.
E)The demand is perfectly inelastic in a black market.

Accepted Answer

Sellers participate in a black market because they are able to sell the product for a higher than legal price. This is because price ceilings in the legal market make it difficult for sellers to make a profit, so they turn to the black market where they can charge higher prices.

Question 4

When a rent ceiling law is passed in a city, which of the following occurs?
A)The total price of renting an apartment decreases to all renters.
B)The quantity of apartments supplied does not change.
C)Some landlords and renters use methods such as "key money" to get around the rent ceiling law.
D)Renters have no trouble finding a nice, reasonably priced apartment to rent.
E)Generally the number of renters in the city increases because people move to the city to take advantage of the low-rent apartments.

Accepted Answer

When a rent ceiling law is passed in a city, it creates a price ceiling on the maximum amount landlords can charge for rent. This can create a shortage of available rental units because landlords may choose to convert their units to condominiums or use other methods to avoid the price ceiling. Renters, on the other hand, may be willing to pay "key money" or other fees to secure a rental unit that is priced below market value.

Question 5

A black market for housing exists because of a rent ceiling. The rent for housing in the black market is
A)the same as the equilibrium rent.
B)lower than the ceiling rent.
C)somewhere between the ceiling rent and the maximum rent a tenant is willing to pay.
D)somewhere between zero and the equilibrium rent.
E)not defined because the market is not legal.

Accepted Answer

The rent ceiling creates a situation where the legal market for housing cannot clear, meaning that there is excess demand for housing at the ceiling rent. This excess demand creates an incentive for landlords and tenants to engage in a black market where rents are higher than the ceiling rent, but lower than the maximum rent a tenant is willing to pay. As a result, the rent for housing in the black market is somewhere between the ceiling rent and the maximum rent a tenant is willing to pay.

Question 6

If a rent ceiling is below the equilibrium rent, some allocation scheme must be used. The allocation methods include all of the following EXCEPT
A)charging the equilibrium rent.
B)refusing to rent to individuals on the basis of sex, race, or some other attribute.
C)requiring a payment, such as key money, in addition to the rent.
D)the creation of a black market.
E)increased search activity.

Accepted Answer

If the rent ceiling is below the equilibrium rent, charging the equilibrium rent is not an option as it would violate the rent ceiling. The other options listed are ways to allocate the scarce housing resources when the rent ceiling creates a shortage. Refusing to rent to individuals on the basis of sex, race, or some other attribute is illegal and discriminatory. Requiring a payment, such as key money, in addition to the rent is another way to allocate housing but can be seen as unfair and disadvantageous to those who cannot afford to pay. The creation of a black market is also an option but can lead to negative externalities such as hidden costs, lack of regulation, and potential dangerous living conditions. Increased search activity can help in finding available housing, but it is not a method of allocation.

Question 7

A rent ceiling below the equilibrium rent
A)increases the quantity of housing supplied.
B)is an example of a price floor.
C)has no effect on the housing market because the ceiling is below the equilibrium.
D)can create a black market.
E)limits search because people need no longer search for cheap apartments.

Accepted Answer

A rent ceiling below the equilibrium rent creates a situation where the quantity of housing demanded exceeds the quantity of housing supplied, leading to a shortage of housing. This shortage may encourage illegal activity, such as renting out apartments above the ceiling price in a black market.

Question 8

The opportunity cost of an apartment in a rent controlled market is equal to
A)the rent charged for the apartment.
B)the opportunity cost of searching for the apartment.
C)the rent charged for the apartment plus the opportunity cost of searching for the apartment.
D)nothing because of the surplus of apartments when there are rent controls.
E)the rent charged for the apartment minus the opportunity cost of searching for the apartment.

Accepted Answer

The opportunity cost of an apartment in a rent-controlled market includes both the rent charged for the apartment and the opportunity cost of searching for the apartment. This is because both the actual rent paid and the time, effort, and possibly other costs associated with finding a rent-controlled apartment contribute to the total cost to the renter.

Question 9

A price ceiling
A)creates market efficiency by making a good cheaper.
B)helps all producers by increasing the price of the good.
C)can create a black market for the good.
D)reduces search activity.
E)benefits all people who want to buy the good.

Accepted Answer

When a price ceiling is set below the market equilibrium price, it creates a shortage of the good or service. This shortage can lead to a black market where the good or service is sold at a higher price than the legal price ceiling. This is because some producers may not be willing to produce and supply the good at the lower price, while consumers are still willing to buy it. Therefore, a price ceiling can create a black market for the good.

Question 10

When a rent ceiling below the equilibrium rent is put in place, the outcome is
A)efficient because marginal benefit equals marginal cost.
B)inefficient because marginal benefit equals marginal cost.
C)inefficient because marginal benefit is greater than marginal cost.
D)inefficient because marginal benefit is less than marginal cost.
E)efficient because marginal benefit is greater than marginal cost.

Accepted Answer

Rent ceilings set below the equilibrium rent create a shortage, leading to a situation where the marginal benefit of renting an apartment (what people are willing to pay) exceeds the marginal cost (the rent controlled price). This discrepancy indicates inefficiency because not all mutually beneficial transactions are occurring.

Question 11

In a housing market with a rent ceiling below the equilibrium rent, apartment seekers spend more time searching for an apartment than they would in a housing market without a rent ceiling. Why does this difference exist?
A)In the market with the rent ceiling, renters are searching for the best buy in apartments.
B)In the market with the rent ceiling, there is a wide variety in the quality of apartments for rent.
C)In the market with the rent ceiling, the quantity of housing demanded is greater than quantity supplied at the ceiling price.
D)The premise of the question is incorrect because people spend less time searching with a rent ceiling since they no longer need to look for a low-priced apartment.
E)The premise of the question is incorrect because there is no difference in the search time between a market with a rent ceiling and one without a ceiling.

Accepted Answer

In a market with a rent ceiling, the quantity of housing demanded is likely to be greater than the quantity supplied at the ceiling price. This creates a shortage of available apartments, and apartment seekers are forced to spend more time searching for an apartment that is both available and meets their needs. In a housing market without a rent ceiling, there is likely to be a more balanced relationship between supply and demand, leading to less time spent searching for an apartment. A and B are not necessarily true, and D and E present alternative viewpoints that are not supported by economic theory.

Question 12

Which of the following is an impact of a rent ceiling set below the equilibrium rent?
A)Renters find apartments to rent more rapidly because the rent ceiling is lower.
B)Landlords' incentives to provide apartments decrease.
C)The supply of apartments increases as soon as the rent ceiling is imposed.
D)A surplus of housing occurs.
E)Search for apartments decreases because renters need no longer search for the apartment with the lowest rent.

Accepted Answer

When a rent ceiling is set below the equilibrium rent, it reduces the potential income for landlords, which in turn decreases their incentive to provide or maintain apartments. This can lead to a decrease in the quality and quantity of available rental units.

Question 13

Which of the following decrease the deadweight loss from a rent ceiling set below the equilibrium rent?
I. lowering the ceiling
Ii. dedicating more resources to enforcement of the ceiling
Iii. raising the ceiling
A)i only
B)ii only
C)iii only
D)i and ii
E)ii and iii

Accepted Answer

iii. Raising the ceiling reduces the gap between the controlled price and the market equilibrium price, thereby reducing the deadweight loss associated with the rent ceiling. Lowering the ceiling or dedicating more resources to enforcement would not reduce the deadweight loss; in fact, lowering the ceiling would increase it.

Question 14

People who benefit from a rent ceiling include
A)all landlords.
B)taxpayers.
C)tenants who have a rent-controlled apartment.
D)potential tenants, that is, people looking for apartments.
E)all landlords and some tenants.

Accepted Answer

Rent ceilings benefit tenants who have a rent-controlled apartment, as they are able to pay a lower rent than market price. Landlords may not benefit from this policy as they may not be able to charge the market price for their apartments, leading to decreased profits. Taxpayers may not directly benefit from rent ceilings. Potential tenants may or may not benefit, as rent-controlled apartments may not be available and could be subject to long waiting lists. Therefore, the best choice is C.

Question 15

A rent ceiling in a housing market
A)makes all rents lower than the ceiling illegal to charge.
B)is set above the equilibrium rent in order to have an effect.
C)increases the time people spend searching for housing.
D)Both answers B and C are correct.
E)Both answers A and C are correct.

Accepted Answer

The answer of A rent ceiling in a housing market
A)makes...

Question 16

An illegal market in which the price exceeds a legally imposed price ceiling is called a
A)shortage market.
B)surplus market.
C)black market.
D)fair market.
E)subsidized market.

Accepted Answer

When a price ceiling is imposed, it sets a legal maximum price that can be charged for a good or service. If the market price exceeds this price ceiling, a black market may emerge where people are willing to pay more than the legal maximum price to obtain the good or service. This illegal market is called a black market.

Question 17

Which of the following results from a price ceiling?
I. increased search activity
Ii. surplus
Iii. black market
A)i only
B)i and iii
C)ii and iii
D)i, ii, and iii
E)ii only

Accepted Answer

A price ceiling is a government-imposed limit on how high a price can be charged for a good or service. It is designed to make the good or service more affordable to consumers. However, it often leads to unintended consequences.

Increased search activity (I) occurs when a price ceiling causes the quantity demanded to exceed the quantity supplied. Consumers will search for the product on the black market or other areas outside the legal market.

A surplus (II) occurs when the price ceiling is set below the equilibrium price. Producers will be unwilling to produce as much, leading to a shortage of goods. At the same time, with less demand, prices will drop, leading to surpluses.

A black market (III) arises when the price ceiling is set below the equilibrium price. Consumers are willing to pay more than the artificially low price, and producers will be willing to sell at a higher price. The imbalance leads to a black market, where goods are traded outside the legal market.

Therefore, the correct answer is B (I and III).

Question 18

A black market
A)is legal only when it is associated with government price ceilings.
B)is defined as the deadweight loss associated with taxes.
C)benefits no one.
D)is a potential outcome of a price ceiling.
E)is always legal.

Accepted Answer

A black market is a market that operates outside the legal market, usually as a result of government intervention such as price ceilings or prohibitions. When a price ceiling is set below the equilibrium price, it creates a shortage of the good or service which leads to a black market where consumers can purchase the good or service at a higher price. Therefore, a black market is a potential outcome of a price ceiling.

Question 19

With a rent ceiling set below the equilibrium rent, i. all renters are able to rent apartments at a lower rent.
Ii. there is a shortage of apartments.
Iii. the quantity of apartments supplied does not change because buildings cannot be moved.
A)i only
B)ii only
C)iii only
D)ii and iii
E)i, ii, and iii

Accepted Answer

Option i is incorrect because although some renters may be able to rent at a lower rent, the shortage of apartments means that not all renters will be able to. Option iii is incorrect because the quantity of apartments supplied will decrease as landlords will not find it profitable to rent out their apartments at the lower rent ceiling. Option ii is correct because a rent ceiling set below the equilibrium rent creates a situation where the quantity demanded exceeds the quantity supplied, resulting in a shortage of apartments.

Question 20

One of the consequences of a rent ceiling set below the equilibrium rent is
A)decreased search activity.
B)increased search activity.
C)the establishment of landlord unions.
D)surpluses of apartments.
E)the elimination of the deadweight loss that would otherwise exist in the housing market.

Accepted Answer

When a rent ceiling is set below the equilibrium rent, it creates a shortage of apartments because the price is artificially kept lower than what the market would naturally determine. This leads to increased search activity as more people are interested in renting at the lower price, but there are not enough apartments available to meet the demand.

Quiz 7: Government Actions in Markets

In a market with a rent ceiling set below the equilibrium rent, the producer and consumer surplus

Suppose the equilibrium rent in Boston is $1,500. A rent ceiling of $1,600 per month leads to

Black markets occur when price ceilings are imposed in a market. Which of the following explains why sellers participate in a black market?

When a rent ceiling law is passed in a city, which of the following occurs?

A black market for housing exists because of a rent ceiling. The rent for housing in the black market is

If a rent ceiling is below the equilibrium rent, some allocation scheme must be used. The allocation methods include all of the following EXCEPT

A rent ceiling below the equilibrium rent

The opportunity cost of an apartment in a rent controlled market is equal to

A price ceiling

When a rent ceiling below the equilibrium rent is put in place, the outcome is

In a housing market with a rent ceiling below the equilibrium rent, apartment seekers spend more time searching for an apartment than they would in a housing market without a rent ceiling. Why does this difference exist?

Which of the following is an impact of a rent ceiling set below the equilibrium rent?

Which of the following decrease the deadweight loss from a rent ceiling set below the equilibrium rent? I. lowering the ceiling Ii. dedicating more resources to enforcement of the ceiling Iii. raising the ceiling

People who benefit from a rent ceiling include

A rent ceiling in a housing market

An illegal market in which the price exceeds a legally imposed price ceiling is called a

Which of the following results from a price ceiling? I. increased search activity Ii. surplus Iii. black market

A black market

With a rent ceiling set below the equilibrium rent, i. all renters are able to rent apartments at a lower rent. Ii. there is a shortage of apartments. Iii. the quantity of apartments supplied does not change because buildings cannot be moved.

One of the consequences of a rent ceiling set below the equilibrium rent is