Question 1

The deadweight loss in a housing market with a rent ceiling set below the equilibrium rent is the

Accepted Answer

When a rent ceiling is set below the equilibrium rent, it creates a shortage of rental units. Some potential renters who are willing to pay the equilibrium rent will not be able to find a unit because landlords do not have enough incentive to offer rental units. Therefore, the deadweight loss in the housing market is the loss to those who cannot find apartments and the loss to landlords who cannot offer housing at the lower rent ceiling. The other choices do not accurately describe the deadweight loss in a housing market with a rent ceiling.

Question 2

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

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 3

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

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 4

Assuming that the rent ceiling is strictly enforced so that there is no black market,which of the following statements about a housing market with a rent ceiling set below the equilibrium rent is correct?

Accepted Answer

When a rent ceiling is set below the equilibrium rent, it creates a situation where the quantity demanded for housing exceeds the quantity supplied. This leads to a shortage of rental housing, and landlords are forced to ration the available housing units among potential renters in some way. This may be through the use of long waiting lists or other non-price methods. At the same time, the artificially low rent ceiling makes it unprofitable for landlords to supply as much housing as the market demands. This creates a deadweight loss, as potential renters who value the housing more than the landlords' cost of supplying it are unable to find rental housing units. As a result, the rent ceiling reduces the overall efficiency of the housing market.

Question 5

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

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 6

A rent ceiling below the equilibrium rent

Accepted Answer

When a rent ceiling is below the equilibrium rent, it creates a shortage of rental housing. Landlords are not willing to supply as much housing at a lower price. This can create a black market where landlords rent out units above the ceiling price illegally.

Question 7

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?

Accepted Answer

In a market with a rent ceiling below the equilibrium rent, the quantity of housing demanded exceeds the quantity supplied at the ceiling price. This leads to a shortage of apartments, which in turn increases the search time for apartment seekers. Since the quantity of housing demanded is greater than the quantity supplied at the ceiling price, there is an excess demand for rental housing which forces apartment seekers to spend more time searching for an apartment. Option A and B may be true, but they do not directly explain the difference in search time between the two markets. Option D and E are incorrect because they contradict the premise of the question.

Question 8

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

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.

Question 9

The deadweight loss from a rent ceiling below the equilibrium rent is smallest when the supply of housing is

Accepted Answer

The deadweight loss from a rent ceiling is smallest when the supply of housing is perfectly inelastic. This means that the quantity supplied of housing does not respond at all to changes in the rent. In this case, the rent ceiling only affects the distribution of the limited amount of housing among tenants, without reducing the overall quantity supplied, which minimizes the loss of welfare relative to other levels of supply elasticity.

Question 10

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

Accepted Answer

Sellers are able to sell the product for a higher than legal price in the black market, which can result in higher profits for them.

Question 11

People who benefit from a rent ceiling include

Accepted Answer

Rent ceilings benefit tenants who have a rent-controlled apartment by limiting the amount they have to pay for rent. This helps them save money and have more stable housing costs.

Question 12

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

Accepted Answer

A black market is an illegal market where prices are set above the legally imposed price ceiling. This can occur when the government imposes a maximum price but demand exceeds supply and sellers are unable to meet the demand at the legally set price, so they then sell their goods or services at a higher price in a black market.

Question 13

Rent ceilings set below the equilibrium rent
i.create a deadweight loss.
ii.increase search activity.
iii.result in a surplus of apartments.

Accepted Answer

Rent ceilings set below the equilibrium rent create a deadweight loss because they result in a shortage of housing units, which means that some people who are willing to pay the equilibrium price for housing cannot find an apartment. This results in a loss of economic efficiency because some mutually beneficial transactions are not taking place. Additionally, rent ceilings increase search activity as more people will be in search of apartments due to decreased prices.

Question 14

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

Accepted Answer

A black market for housing emerges when the legal market is restricted by a rent ceiling, leading to prices that are higher than the ceiling but below the maximum a tenant is willing to pay, as demand exceeds supply at the ceiling price.

Question 15

Which of the following results from a price ceiling?
i.increased search activity
ii.surplus
iii.black market

Accepted Answer

A price ceiling sets a maximum price that can be charged for a good or service. This can lead to increased search activity (i) as consumers search for alternative sources of the good or service at a lower price. It can also lead to a surplus (ii) of the good or service as suppliers are unable to charge a higher price in order to cover their costs of production. Finally, price ceilings often lead to the emergence of a black market (iii) for the good or service, as suppliers seek to sell at a higher price while buyers are willing to pay the higher price to obtain the good or service. Therefore, the correct answer is B, which includes both (i) and (iii).

Question 16

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

Accepted Answer

When a rent ceiling law is passed, landlords may use various methods to get around the law such as demanding additional payments like key money. Therefore, option C is the most accurate answer. Option A is incorrect because it assumes that the total price for renting an apartment will decrease for all renters, which is not true. Option B is also not always accurate because if landlords find it unprofitable to rent their apartments under the ceiling, they may reduce the number of apartments supplied. Option D and E are incorrect because a rent ceiling law may not necessarily lead to an abundance of affordable housing or an influx of renters in the city.

Question 17

A rent ceiling in a housing market

Accepted Answer

A rent ceiling below the equilibrium rent creates a shortage, leading to increased search time for housing.

Question 18

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

Accepted Answer

When a rent ceiling is set below the equilibrium rent, it creates a shortage of rental units, as the quantity supplied is less than the quantity demanded. As a result, the producer surplus decreases, as landlords are unable to charge the equilibrium price and receive less revenue, and the consumer surplus also decreases as some renters are unable to find a suitable apartment or are forced to pay more to get one. However, the producer and consumer surplus do not generally decrease to zero as some rental units are still available in the market. The decrease in producer and consumer surplus leads to deadweight loss due to inefficiencies caused by the artificially imposed rent ceiling.

Question 19

A price ceiling

Accepted Answer

Price ceilings are government-imposed limits on how high a price can be charged for a good or service. When a price ceiling is set below the equilibrium price, it creates a shortage of the good. This shortage creates an incentive for people to find ways to get the good, even if it means buying on a black market where the price is higher. Therefore, price ceilings can create a black market for the good.

Question 20

A black market

Accepted Answer

A black market is defined as an illegal market in which the buying and selling of goods or services takes place at a price above the legal price ceiling. Therefore, it is a potential outcome of a price ceiling.

Quiz 7: Government Actions in Markets