Question 1

Suppose the equilibrium rent for apartments in a city is $$1,200 per month. The government imposes a rent ceiling of 1$$,000 per month. What is the most likely immediate effect in the housing market?

Accepted Answer

A shortage of apartments will occur, as quantity demanded exceeds quantity supplied.

Question 2

Which of the following best describes the opportunity cost of housing when a rent ceiling creates a shortage?

Accepted Answer

It equals the regulated rent plus the opportunity cost of search activity.

Question 3

A rent ceiling set below the equilibrium rent leads to which of the following outcomes?

Accepted Answer

Marginal social benefit exceeds marginal social cost, resulting in deadweight loss.

Question 4

Which allocation method for scarce housing under a rent ceiling is considered fair according to the fair results view?

Accepted Answer

None of the methods (lottery, first-come, first-served, discrimination) are considered fair.

Question 5

If the minimum wage is set above the equilibrium wage rate, what is the result in the labour market?

Accepted Answer

Unemployment is created as quantity supplied exceeds quantity demanded.

Question 6

A minimum wage set above the equilibrium wage rate leads to which of the following inefficiencies?

Accepted Answer

Marginal social cost of labour is less than marginal social benefit.

Question 7

Consider a $$6 tax imposed on sellers of cigarettes. The equilibrium price without tax is 12. $$After the tax, buyers pay $$16 and sellers receive 10. $$How much of the tax is paid by buyers and how much by sellers?

Accepted Answer

Buyers pay $$4, sellers pay 2.$$

Question 8

Which statement about tax incidence is correct?

Accepted Answer

The division of the tax burden depends on the elasticities of demand and supply.

Question 9

If demand for a good is perfectly inelastic, who pays the entire tax when a tax is imposed?

Accepted Answer

The buyer

Question 10

Suppose the supply of a good is perfectly elastic. What happens when a tax is imposed on this good?

Accepted Answer

The buyer pays the entire tax.

Question 11

Which of the following goods is most likely to have buyers pay most of the tax due to inelastic demand?

Accepted Answer

Alcohol

Question 12

According to the benefits principle of taxation, who should pay the most taxes?

Accepted Answer

Those who benefit most from government services

Question 13

A production quota is imposed on a farm product, reducing output below the equilibrium quantity. What is the likely result?

Accepted Answer

Marginal social benefit exceeds marginal social cost, and producers have an incentive to cheat.

Question 14

A government subsidy on grain increases supply and output above equilibrium. What is the inefficiency that results?

Accepted Answer

Marginal social cost exceeds marginal social benefit.

Question 15

In a market for an illegal good, if penalties are imposed only on sellers, what happens to equilibrium price and quantity?

Accepted Answer

Price rises and quantity decreases.

Question 16

If both buyers and sellers are penalized in a market for an illegal good, what is the effect on equilibrium?

Accepted Answer

Both demand and supply decrease, lowering quantity.

Question 17

Which formula correctly represents the deadweight loss from a tax in a competitive market?

Accepted Answer

$$DWL = \frac{1}{2} 	imes (Q_{no\ tax} - Q_{tax}) 	imes (P_{buyer} - P_{seller})$$

Question 18

If the government legalizes and taxes a previously illegal drug, what economic effect can a sufficiently high tax have?

Accepted Answer

It can decrease supply, raise price, and reduce consumption similar to prohibition.

Question 19

Which principle justifies higher rates of income tax on high incomes?

Accepted Answer

Ability-to-pay principle

Question 20

A tax creates inefficiency in a market except in which case?

Accepted Answer

When either demand or supply is perfectly inelastic and quantity does not change.

Government Actions in Markets: Rent Ceilings, Minimum Wage, Taxes, Quotas, Subsidies, and Illegal Goods

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