Deck 7: Government Actions in Markets

Question 1

Suppose the equilibrium rent in Denver is $1,050.A rent ceiling of $755 per month leads to

A)a surplus of apartments in Denver.
B)a shortage of apartments in Denver.
C)no change in the Denver apartment market.
D)fair prices in the Denver 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.

Answer 1

B

Question 2

A housing shortage results when

A)a tax is imposed on housing.
B)a rent ceiling below the equilibrium rent is imposed.
C)a rent ceiling above the equilibrium rent is imposed.
D)rents rise.
E)a rent floor below the equilibrium rent is imposed.

Answer 2

B

Question 3

The demand and supply schedules for pizza are in the table above.A price ceiling of $4 per slice results in

A)a surplus of 20 slices of pizza.
B)a shortage of 20 slices of pizza.
C)a shortage of 40 slices of pizza.
D)a shortage of 60 slices of pizza.
E)neither a shortage nor a surplus.

Answer 3

E

Question 4

A price ceiling in the market for gasoline that is below the equilibrium price will lead to

A)the quantity demanded of gasoline exceeding the quantity supplied.
B)an increase in the demand for gasoline.
C)a decrease in the supply of gasoline.
D)the quantity supplied of gasoline exceeding the quantity demanded.
E)no change in the market since the price ceiling is below the equilibrium price.

Question 5

A rent ceiling set below the equilibrium rent decreases the quantity of housing supplied because

A)landlords of previously barely profitable apartments refuse to rent them.
B)the supply of housing increases.
C)fewer tenants will search for housing.
D)demand for housing will increase.
E)the supply curve of housing immediately shifts leftward.

Question 6

A price ceiling in the market for fuel oil that is below the equilibrium price will

A)lead to the quantity supplied of fuel oil exceeding the quantity demanded.
B)lead to the quantity demanded of fuel oil exceeding the quantity supplied.
C)decrease the demand for fuel oil.
D)increase the supply of fuel oil.
E)have no effect in the market for fuel oil.

Question 7

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.

Question 8

A price ceiling is

A)a maximum legal price.
B)a minimum legal price.
C)an equilibrium price.
D)a market-determined price.
E)the highest price at which the quantity demanded equals the quantity supplied.

Question 9

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.

Question 10

The demand and supply schedules for pizza are in the table above.A price ceiling of $2 per slice results in

A)a surplus of 20 slices of pizza.
B)a shortage of 20 slices of pizza.
C)a shortage of 40 slices of pizza.
D)a shortage of 60 slices of pizza.
E)neither a shortage nor a surplus.

Question 11

When a price ceiling below the equilibrium price is imposed on a good, production of the good

A)increases.
B)decreases.
C)does not change.
D)is frozen at the pre-ceiling level.
E)either increases or decreases depending on whether the supply of the good increases or decreases when the price ceiling is imposed.

Question 12

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.

Question 13

The demand and supply schedules for pizza are in the table above.If the government sets a maximum legal price of $2 per slice of pizza, then

A)there is a shortage of 20 slices of pizza.
B)this maximum price is an example of a price floor.
C)this maximum price is an example of a price ceiling.
D)Both answers A and C are correct.
E)Both answers B and C are correct.

Question 14

A price ceiling

A)is an illegal price.
B)is the price that exists in a black market.
C)is the maximum price that can legally be charged.
D)Both answers A and B are correct.
E)Both answers B and C are correct.

Question 15

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

Question 16

If a price ceiling is set above the equilibrium price, then

A)there will be a surplus of the good.
B)there will be a shortage of the good.
C)there will be neither a shortage nor a surplus of the good.
D)the price ceiling will generate revenue for the government.
E)the price ceiling affects suppliers but not demanders.

Question 17

A rent ceiling set below the equilibrium rent

A)ensures the availability of enough low-rent apartments in a city.
B)results in all renters and potential renters being better off.
C)creates a situation in which the quantity demanded of housing is greater than quantity supplied.
D)ensures that landlords earn a reasonable rate of profit on apartments.
E)eliminates discrimination by landlords.

Question 18

The figure above illustrates the bagel market.Which of the following statements is correct?

A)With a price ceiling of $1.00 per bagel, the price of a bagel is $1.
B)With a price ceiling of $3.00 per bagel, the price of a bagel is $2.
C)With no government intervention, the equilibrium price of a bagel is $2.
D) Only answers A and B are correct.
E)Answers A, B, and C are correct.

Question 19

The figure above illustrates the bagel market.Which of the following statements is correct?

A)With a price ceiling of $1.00 per bagel, the quantity demanded is equal to the quantity supplied.
B)With a price ceiling of $3.00 per bagel, the quantity demanded is greater than the quantity supplied.
C)With a price ceiling of $1.00 per bagel, there is a shortage of bagels.
D)Answers A and B are correct.
E)Answers B and C are correct.

Question 20

In a housing market with no rent ceilings, the equilibrium rent is that for which the quantity of apartments demanded

A)equals the quantity supplied.
B)is greater than the quantity supplied.
C)is less than the quantity supplied.
D)might be greater than, equal to, or less than the quantity supplied depending on whether the supply curve is upward sloping, horizontal, or vertical.
E)None of the above answers is correct because without rent ceilings there is no equilibrium rent.

Question 21

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.

Question 22

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.

Question 23

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.

Question 24

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.

Question 25

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.

Question 26

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

Question 27

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.

Question 28

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.

Question 29

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.

Question 30

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.

Question 31

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.

Question 32

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.

Question 33

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.

Question 34

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.

Question 35

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.

Question 36

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

Question 37

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.

Question 38

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.

Question 39

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

Question 40

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.

Question 41

The above figure shows the market for winter jackets.In an effort to keep the nation warm, the president places a price ceiling of $100 in the market for winter jackets.When the price ceiling is in place and taking account of the resources lost in search, consumer surplus ________ and producer surplus ________ compared to the equilibrium before the price ceiling was imposed.

A)decreases; increases
B)decreases; decreases
C)increases; increases
D)increases; decreases
E)does not change; increases

Question 42

The above figure shows a housing market with a rent ceiling equal to $1,000.In this figure, what area is equal to the deadweight loss?

A)area A
B)area B
C)area C
D)area D
E)area E

Question 43

The above figure shows the market for 2 bedroom town homes in San Diego.If a rent ceiling is set at $1,000 per month, what is the maximum rent someone is willing to pay in the black market?

A)$1,300 per month
B)$1,000 per month
C)$900 per month
D)$1,100 per month
E)$1,400 per month

Question 44

The above figure shows the market for DVDs.The government decides that all citizens deserve to watch affordable DVDs so a price ceiling of $12 per DVD is placed on DVDs.After this price ceiling is in effect, deadweight loss equals ________.

A)$1,600,000
B)$200,000
C)$800,000
D)$1,800,000
E)$400,000

Question 45

The above figure shows a housing market with a rent ceiling equal to $1,000.In this figure, what area is equal to the resources lost due to search?

A)area A
B)area B
C)area C
D)area D
E)area E

Question 46

The above figure shows the market for winter jackets.In an effort to keep the nation warm, the president places a price ceiling of $100 in the market for winter jackets.As a result, there is a

A)shortage equal to 150,000 jackets.
B)surplus equal to 150,000 jackets.
C)surplus equal to 300,000 jackets.
D)shortage equal to 250,000 jackets.
E)shortage equal to 100,000 jackets.

Question 47

Which of the following is an example of the unfairness of rent control?

A)Voluntary exchange is encouraged by rent control.
B)Racial discrimination in renting is discouraged by rent control.
C)Newcomers have a more difficult time finding apartments.
D)Rich people do not get apartments in these markets.
E)Too many people rent apartments.

Question 48

The above figure shows the market for 2 bedroom town homes in San Diego.If a rent ceiling is set at $1,000 per month then there is a

A)surplus equal to 150,000 town homes.
B)shortage equal to 100,000 town homes.
C)surplus equal to 100,000 town homes.
D)shortage equal to 150,000 town homes.
E)shortage equal to 250,000 town homes.

Question 49

The above figure shows a housing market with a rent ceiling equal to $1,000.In this figure, what area is equal to the producer surplus?

A)area A
B)area B
C)area C
D)area D
E)area E

Question 50

In a housing market with a rent ceiling set below the equilibrium rent, as time passes the supply of apartments

A)decreases.
B)increases.
C)does not change.
D)becomes fixed by the government.
E)increases while the demand for apartments decreases.

Question 51

Rent controls

A)create a deadweight loss.
B)increase maintenance by landlords.
C)benefit people who live in rent controlled apartments.
D) Both answers A and C are correct.
E) Both answers B and C are correct.

Question 52

The above figure shows the market for DVDs.The government decides that all citizens deserve to watch affordable DVDs so a price ceiling of $12 per DVD is placed on DVDs.After this price ceiling is in effect and taking account of the resources lost in search, consumer surplus equals ________.

A)$900,000
B)$400,000
C)$200,000
D)$180,000
E)$100,000

Question 53

The above figure shows the market for 2 bedroom town homes in San Diego.If a rent ceiling is set at $1,000 per month, what is true?

A)The quantity of town homes demanded decreases to 100,000.
B)Black market rents might be as high as $1,300 per month.
C)The quantity of town homes supplied increases to 250,000.
D)More town homes are rented after the rent ceiling that before.
E)The quantity demanded of town homes is less than the quantity supplied.

Question 54

The above figure shows the market for winter jackets.In an effort to keep the nation warm, the president places a price ceiling of $100 in the market for winter jackets.Which of the following statements is true?

A)After taking account of the resources lost in search, consumer surplus increases when the price ceiling is in place.
B)There will be a surplus of jackets.
C)Because the price of a jacket is lowered, consumers end up buying more jackets with the price ceiling than without it.
D)Producer surplus decreases if there is a price ceiling.
E)The quantity supplied of jackets is greater that quantity demanded when there is a price ceiling.

Question 55

The above figure shows a housing market with a rent ceiling equal to $1,000.In this figure, after taking account of the resources lost in search, what area is equal to the consumer surplus?

A)area A
B)area B
C)area C
D)area D
E)area E

Question 56

Rent ceilings are difficult to abolish because

A)they create such large profits for landlords.
B)current renters offer political support for ceilings.
C)the government doesn't like to give up the tax revenues associated with ceilings.
D)they result in an efficient use of resources.
E)landlords lobby to keep them in place.

Question 57

New York City, which has had a rent ceiling law for more than sixty years, has many abandoned apartment buildings throughout the city.Which of the following explains this?

A)Few workers with jobs in the city want to live in there because of pollution.
B)No building permits for new apartment buildings have been issued for over fifty years.
C)Once any building gets so old, it is abandoned.
D)Landlords have no incentive to finance maintenance and remodeling of apartment buildings.
E)Rent ceilings make the construction of new buildings so profitable that old buildings are simply abandoned.

Question 58

The above figure shows the market for DVDs.The government decides that all citizens deserve to watch affordable DVDs so a price ceiling of $12 per DVD is placed on DVDs.After this price ceiling is in effect, producer surplus equals ________.

A)$900,000
B)$400,000
C)$200,000
D)$100,000
E)$1,800,000

Question 59

The above figure shows the market for winter jackets.In an effort to keep the nation warm, the president places a price ceiling of $100 in the market for winter jackets.What would be the maximum price someone would pay in the black market?

A)$100 per jacket
B)$120 per jacket
C)$130 per jacket
D)$90 per jacket
E)$140 per jacket

Question 60

Suppose the city of Chicago imposes a rent control program that fixes rents at $400 below the equilibrium rent.With this plan

A)the quantity of apartments demanded will increase.
B)the quantity of apartments supplied will increase.
C)young people and poor people will have an easier time finding apartments.
D)the deadweight loss in Chicago's apartment market will be eliminated.
E)there will be a surplus of apartments offered for rent.

Question 61

The graph shows the market for ski chalets in Aspen.If a rent ceiling is set at $1,900 a week, then the maximum amount charged in the black market is ________ a week.

A)$1,900
B)$2,050
C)$2,125
D)$225
E)$150

Question 62

A price floor is

A)the highest possible legal price that can be charged for a good or service.
B)usually equal to the equilibrium price established before the government imposed the price floor.
C)the lowest legal price at which a good or service can be traded.
D)a legal price of zero that can be charged for a good or service.
E)almost always equal to the price ceiling.

Question 63

A rent ceiling on housing creates a problem of allocating the available housing units because

A)the demand for housing decreases and the demand curve shifts leftward.
B)the supply of housing increases and the supply curve shifts rightward.
C)a shortage of apartments occurs.
D)a surplus of apartments occurs.
E)it eliminates search, which is one of the major ways housing units are allocated.

Question 64

If a rent ceiling is imposed that is less than the equilibrium rent, which of the following outcomes is most likely to occur?

A)reduced search activity
B)black market activity
C)a building boom
D)a housing surplus
E)None of the above answers is correct because to have an impact, the rent ceiling must be above the equilibrium rent.

Question 65

A price floor makes prices

A)below the price floor illegal.
B)above the price floor illegal.
C)below the equilibrium price illegal.
D)above the equilibrium price illegal.
E)None of the above answers is correct.

Question 66

The graph shows the market for holiday condos in West Palm Beach.If a rent ceiling is set at $1,700 a week, the quantity of holiday condos rented ________.

A)is 2,000 a week
B)is 4,000 a week
C)is 5,000 a week
D)is some amount, but more information is needed to determine the amount.
E)depends on the black market

Question 67

A price floor set above the equilibrium price

A)creates a surplus.
B)creates a shortage.
C)creates excess demand.
D)balances supply and demand.
E)has no effect.

Question 68

If a price ceiling is introduced in the market for milk below the market equilibrium price, then the producer surplus made by dairy farmers ________.

A)will increase
B)will decrease
C)will not change
D)might increase or decrease depending on whether the demand for milk increases or decreases
E)might increase or decrease depending on whether the supply of milk decreases or increases

Question 69

The graph shows the market for rental housing in Little Rock.The market for apartments is efficient when ________.

A)the quantity of apartments demanded is 12,000 a month
B)the rent ceiling is set at $300 a month
C)there is no rent ceiling
D)the quantity of apartments supplied is 6,000 a month
E)the rent charged is less than $450

Question 70

A rent ceiling creates a deadweight loss

A)if it is set below the equilibrium rent.
B)if it is set equal to the equilibrium rent.
C)if it set above the equilibrium rent.
D)if it decreases the taxes the government collects in the housing market.
E)never, because if it did create a deadweight loss, the government would not impose it.

Question 71

Rent ceilings

A)increase search activity.
B)result in surpluses.
C)create efficiency.
D)benefit producers.
E)have no effect if they are set below the equilibrium rent.

Question 72

The graph shows the market for ski chalets in Aspen.The Aspen Tourist Board asks the local government to impose a rent ceiling on ski chalets.If the rent ceiling is set at $1,900 a week, then there is ________.

A)a shortage of 3,000 chalets a week
B)a surplus of 3,000 chalets a week
C)neither a shortage nor surplus of chalets
D)a shortage of 6,000 chalets a week
E)a surplus of 6,000 chalets a week.

Question 73

When a price ceiling is set below the equilibrium price, the quantity supplied ________ the quantity demanded and ________ exists.

A)is less than; a surplus
B)is less than; a shortage
C)is greater than; a surplus
D)is greater than; a shortage
E)equals; an equilibrium

Question 74

Which of the following is an example of a price floor?

A)a law passed in a city to lower apartment rents by setting the maximum price that can be charged for rent
B)an equilibrium price
C)a minimum wage law
D)a law setting the highest price that can legally be charged for a gallon of gasoline.
E)None of the above answers give examples of a price floor.

Question 75

Suppose that the government imposes a price ceiling on gasoline that is below the equilibrium price.The black market for gasoline is ________ market in which the price ________ ceiling price.

A)a legal; exceeds the
B)an illegal; exceeds the
C)a legal; is less than the
D)an illegal; is less than the
E)an illegal; equals

Question 76

A price ceiling is a government regulation that makes it illegal to charge a price

A)below the equilibrium price.
B)above the equilibrium price.
C)for a good or service.
D)above some specified level.
E)below some specified level.

Question 77

In a housing market with a rent ceiling set below the equilibrium rent,

A)some people seeking an apartment to rent will not be able to find one.
B)the total cost of renting an apartment will decrease for all those seeking housing.
C)some landlords will not be able to find renters to fill available apartments.
D)search will decrease because renters no longer need to search for less expensive apartments.
E)None of the above answers are correct because to have an impact, the rent ceiling must be set above the equilibrium rent.

Question 78

Rent ceilings

A)eliminate the problem of scarcity.
B)allocate resources efficiently.
C)ensure that housing goes to the poorer people.
D)benefit renters living in rent-controlled apartments.
E)benefit all landlords because the landlords know what rent to charge their renters.

Question 79

The graph shows the market for holiday condos in West Palm Beach.The equilibrium rent is ________ a week.

A)any amount less than $1,550
B)any amount greater than $1,550
C)$1,550
D)$4,000
E)None of the above answers is correct.

Question 80

A rent ceiling is

A)fair, because it helps all renters.
B)fair, because it insures that low-income families can rent apartments.
C)fair, because it helps all landlords.
D)unfair.
E)fair, because it helps more renters than it harms.