Question 1

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

A price ceiling can create a black market for the good because it sets a maximum price below the equilibrium price, causing a shortage of the good in the market. In this situation, suppliers may resort to selling the good through illegal channels, resulting in a black market. This can lead to the rise of criminal activities and decreased safety for consumers.

Question 2

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 black market for housing exists because the rent ceiling creates a shortage of housing at the legally allowed price, forcing some renters to search for housing through illegal means. The rent in the black market is usually higher than the regulated rent but lower than the maximum rent a tenant is willing to pay, creating a balance between affordability and quality. Therefore, the rent in the black market is somewhere between the ceiling rent and the maximum rent a tenant is willing to pay.

Question 3

The deadweight loss in a housing market with a rent ceiling set below the equilibrium rent is the
A) loss to those who cannot find apartments and the gain to landlords who charge black market rents.
B) loss to those who cannot find apartments and the loss to landlords who cannot offer housing at the lower rent ceiling.
C) loss to landlords and the gain to tenants who pay a fairer rent.
D) loss to tenants and the gain to landlords who have the incentive to offer more apartments for rent.
E) gain to landlords and to tenants because now a fairer rent is charged.

Accepted Answer

The deadweight loss in a housing market with a rent ceiling set below the equilibrium rent is the loss to those who cannot find apartments and the loss to landlords who cannot offer housing at the lower rent ceiling. This is because the rent ceiling creates excess demand for housing, leading to shortages and a reduction in the quantity and quality of available housing units. Landlords also suffer because they are unable to charge the market rent, leading to a reduction in their profits and a disincentive to maintain or improve their properties. Thus, option B is the correct answer.

Question 4

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

When the rent ceiling is set below the equilibrium rent, the quantity demanded exceeds the quantity supplied. As a result, there will be a shortage in the market. This shortage leads to a decrease in consumer surplus as consumers are unable to purchase as much as they desire at the lower price. Producers will also decrease supply in response to the lower rent, which decreases producer surplus. Therefore, both consumer and producer surplus will decrease, but generally not to zero. The reduction in surplus creates deadweight loss in the market.

Question 5

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

When a price ceiling is imposed, it is below the equilibrium price, causing a shortage in the market. Some sellers see an opportunity to sell their products for a higher price in the black market, where there is no legal restriction on the price. Therefore, they participate in the black market to make more profit.

Question 6

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 potential outcome of a price ceiling because when the government sets a price ceiling below the equilibrium price, the quantity demanded exceeds the quantity supplied, leading to a shortage. Producers may then choose to sell their goods on the black market at a higher price, which is illegal and unregulated.

Question 7

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 8

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 puts a legal maximum on the price of a good or service. This creates a situation where suppliers cannot charge as much as they would like to, and demanders are willing to pay more than what suppliers are charging. This creates an excess demand for the good or service, leading to search activity (people spending time and resources to find the good or service at the lower price), and potentially a black market (suppliers charging higher prices in illegal, unregulated markets). Additionally, since suppliers cannot charge higher prices, they may produce less of the good or service, leading to a surplus. Therefore, options i and iii are both results of a price ceiling, while ii is a potential consequence depending on the specifics of the market.

Question 9

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 10

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
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Question 11

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?
A) The rent for housing equals the ceiling rent or higher.
B) There is excess supply of housing.
C) The rent ceiling increases the amount of producers' surplus.
D) The rent ceiling creates a deadweight loss.
E) The rent ceiling enforces efficiency upon the housing market.

Accepted Answer

When the rent ceiling is set below the equilibrium rent, it creates a shortage of housing which causes excess demand. This results in a deadweight loss as some potential tenants are unable to find housing and some landlords may leave units vacant due to the lower prices they can charge. Therefore, choice D is the correct answer.

Question 12

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 amount of rent than they would have had to without the rent ceiling. The other options are incorrect as not all landlords benefit from rent ceilings, taxpayers may or may not benefit depending on the situation, potential tenants may face reduced availability of rental units due to landlords being less willing to supply them at lower prices, and not all landlords and some tenants benefit as the question implies.

Question 13

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 14

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 landlords cannot charge the market price for their housing units. This can lead to a shortage of available rental units and an increase in demand, which in turn can create a black market where landlords charge a higher price for their units unofficially to avoid the rent ceiling.

Question 15

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, landlords may use methods such as "key money" to get around the rent ceiling law. This is when a landlord requests a large sum of money upfront, in addition to the rent, in exchange for renting to the tenant. This allows the landlord to receive more income than the rent ceiling allows, while technically charging the legal amount of rent.

Question 16

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 housing 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 available apartments, making it more difficult and time-consuming for apartment seekers to find a suitable apartment. Thus, option C is the best choice. Option A and B may be true in some cases, but they do not specifically explain the difference in search time between the two markets. Option D and E are incorrect based on the explanation above.

Question 17

The deadweight loss from a rent ceiling below the equilibrium rent is smallest when the supply of housing is
A) perfectly elastic.
B) elastic but not perfectly elastic.
C) unit elastic.
D) inelastic but not perfectly inelastic.
E) perfectly inelastic.

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 18

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.

Question 19

Rent ceilings set below the equilibrium rent
i.create a deadweight loss.
ii.increase search activity.
iii.encourage landlords to charge a high price for new locks and keys,called "key money."
A) i only
B) ii only
C) i and iii
D) i and ii
E) i, ii, and iii

Accepted Answer

Rent ceilings below equilibrium rent create a deadweight loss by reducing the quantity of housing available. They increase search activity as people spend more time looking for housing. Landlords may charge "key money" as a way to circumvent rent controls and extract more money from tenants.

Question 20

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

A black market is an illegal market in which goods or services are bought and sold in violation of government price controls or rationing. The price ceiling set by the government creates a shortage of goods that are in high demand, which encourages people to engage in black market transactions where the prices exceed the legal limit. Therefore, a black market is the best option.

Quiz 7: Government Actions in Markets

A price ceiling

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

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

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

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

A black market

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

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

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

A rent ceiling in a housing market

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?

People who benefit from a rent ceiling include

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

A rent ceiling below the equilibrium rent

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

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?

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

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

Rent ceilings set below the equilibrium rent i.create a deadweight loss. ii.increase search activity. iii.encourage landlords to charge a high price for new locks and keys,called "key money."

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