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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
28) 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.
29) 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.
30) 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.
31) 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.
32) 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.
33) 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
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.
35) 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.
36) 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.
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.
38) 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.
39) 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.
40) The above figure shows the market for 2 bedroom townhomes in San Diego. If a rent ceiling
is set at $1,000 per month then there is a
A) surplus equal to 150,000 townhomes.
B) shortage equal to 100,000 townhomes.
C) surplus equal to 100,000 townhomes.
D) shortage equal to 150,000 townhomes.
E) shortage equal to 250,000 townhomes.
41) The above figure shows the market for 2 bedroom townhomes in San Diego. If a rent ceiling
is set at $1,000 per month, what is true?
A) The quantity of townhomes demanded decreases to 100,000.
B) Black market rents might be as high as $1,300 per month.
C) The quantity of townhomes supplied increases to 250,000.
D) More townhomes are rented after the rent ceiling that before.
E) The quantity demanded of townhomes is less than the quantity supplied.
42) The above figure shows the market for 2 bedroom townhomes 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
43) 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.
44) 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.
45) 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
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. 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
47) 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
48) 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
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 deadweight loss?
A) area A
B) area B
C) area C
D) area D
E) area E
50) 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