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Copyright © 2011 Pearson Education, Inc.
Foundations of Microeconomics, 5e (Bade/Parkin)
Chapter 7 Government Actions in Markets
7.1 Price Ceilings
1) 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.
Skill: Level 1: Definition
Section: Checkpoint 7.1
Author: SA
AACSB: Reflective thinking
2) 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.
Skill: Level 1: Definition
Section: Checkpoint 7.1
Author: SB
AACSB: Reflective thinking
3) 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.
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Author: SA
AACSB: Reflective thinking
2
Copyright © 2011 Pearson Education, Inc.
4) 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.
Skill: Level 3: Using models
Section: Checkpoint 7.1
Author: SB
AACSB: Reflective thinking
5) 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.
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Author: SA
AACSB: Reflective thinking
3
Copyright © 2011 Pearson Education, Inc.
6) 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.
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Author: SA
AACSB: Analytical reasoning
7) 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.
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Author: SA
AACSB: Analytical reasoning
4
Copyright © 2011 Pearson Education, Inc.
8) 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.
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Author: SA
AACSB: Analytical reasoning
9) 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.
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Author: SA
AACSB: Analytical reasoning
5
Copyright © 2011 Pearson Education, Inc.
10) 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.
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Author: SA
AACSB: Analytical reasoning
11) 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.
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Author: JC
AACSB: Reflective thinking
12) 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.
Skill: Level 3: Using models
Section: Checkpoint 7.1
Author: TS
AACSB: Reflective thinking
6
Copyright © 2011 Pearson Education, Inc.
13) 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.
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Author: TS
AACSB: Reflective thinking
14) 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.
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Author: SB
AACSB: Reflective thinking
15) 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.
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Author: JC
AACSB: Analytical reasoning
7
Copyright © 2011 Pearson Education, Inc.
16) 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.
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Author: JC
AACSB: Analytical reasoning
17) 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
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Author: TS
AACSB: Reflective thinking
18) 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.
Skill: Level 3: Using models
Section: Checkpoint 7.1
Author: TS
AACSB: Reflective thinking
8
Copyright © 2011 Pearson Education, Inc.
19) 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.
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Author: TS
AACSB: Reflective thinking
20) 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
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Author: CD
AACSB: Reflective thinking
21) 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.
Skill: Level 1: Definition
Section: Checkpoint 7.1
Author: JC
AACSB: Reflective thinking
9
Copyright © 2011 Pearson Education, Inc.
22) 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.
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Author: SB
AACSB: Reflective thinking
23) 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.
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Author: CD
AACSB: Reflective thinking
24) 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.
Skill: Level 3: Using models
Section: Checkpoint 7.1
Author: TS
AACSB: Reflective thinking
10
Copyright © 2011 Pearson Education, Inc.
25) 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.
Skill: Level 4: Applying models
Section: Checkpoint 7.1
Author: SB
AACSB: Reflective thinking
26) 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.
Skill: Level 3: Using models
Section: Checkpoint 7.1
Author: TS
AACSB: Reflective thinking
27) 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.
Skill: Level 2: Using definitions
Section: Checkpoint 7.1
Author: TS
AACSB: Reflective thinking
