Question 1

Which of the following best describes a price ceiling?

Accepted Answer

A government regulation that makes it illegal to charge a price higher than a specified level.

Question 2

If a rent ceiling is set below the equilibrium price in a housing market, what is the most likely outcome?

Accepted Answer

A housing shortage, increased search activity, and the creation of an illegal market.

Question 3

Given the equation for excess demand under a rent ceiling: $$ED = (Q_d - Q_s)$$, what does $$ED$$ represent?

Accepted Answer

The shortage of housing units caused by the rent ceiling.

Question 4

What is the opportunity cost of housing when a rent ceiling is imposed?

Accepted Answer

$$Opportunity\ Cost = Ceiling\ Rent + Time\ Spent\ Searching$$

Question 5

Which area on a supply and demand graph represents deadweight loss (DWL) due to a rent ceiling?

Accepted Answer

The area where $$Marginal\ Social\ Benefit \u003e Marginal\ Social\ Cost$$

Question 6

A price floor set above the equilibrium price in the labor market is known as:

Accepted Answer

A minimum wage.

Question 7

What is the result of a minimum wage set above the equilibrium wage?

Accepted Answer

Unemployment due to excess supply of labor.

Question 8

Calculate the excess supply in the labor market when a minimum wage is imposed using the formula $$ES = (Q_s - Q_d). $$What does $$ES$$ represent?

Accepted Answer

The number of unemployed workers.

Question 9

Which of the following is NOT a potential method of allocating scarce housing under a rent ceiling?

Accepted Answer

Auctioning units to the highest bidder.

Question 10

What is the formula for potential loss from housing search under a rent ceiling?

Accepted Answer

$$Potential\ Loss = (Maximum\ Illicit\ Market\ Rent - P_{Ceiling}) 	imes Q_s$$

Question 11

Which of the following best explains why a price ceiling set above the equilibrium price has no effect?

Accepted Answer

Market forces keep the price at equilibrium, so the ceiling is not binding.

Question 12

If a minimum wage is set below the equilibrium wage, what is the effect on the labor market?

Accepted Answer

No effect; the market wage remains at equilibrium.

Question 13

Which formula correctly represents consumer surplus in the context of price controls?

Accepted Answer

$$CS = \frac{1}{2}bh$$

Question 14

What is the deadweight loss (DWL) formula for both rent ceilings and minimum wage scenarios?

Accepted Answer

$$DWL = \frac{1}{2}bh$$

Question 15

A city government imposes a rent ceiling at $$1,000$$ per month, while the equilibrium rent is $$1,400. If $$the quantity demanded at $$1,000 is$$ $$100,000$$ units and the quantity supplied is $$60,000$$ units, what is the housing shortage?

Accepted Answer

$$100,000 - 60,000 = 40,000$$ units

Question 16

Which of the following is a likely consequence of a minimum wage set above equilibrium in a real-world labor market?

Accepted Answer

Increased unemployment among low-skilled workers.

Question 17

What does the area labeled 'Potential loss from job search' represent in the context of a minimum wage?

Accepted Answer

The additional cost to workers of finding a job when there is unemployment.

Question 18

Which of the following is NOT a direct effect of a rent ceiling set below equilibrium?

Accepted Answer

An increase in producer surplus.

Question 19

If the minimum wage is $$15$$ and the equilibrium wage is $$13$$, with $$Q_s = 22$$ million hours and $$Q_d = 20$$ million hours, what is the unemployment caused by the minimum wage?

Accepted Answer

$$22 - 20 = 2$$ million hours

Question 20

Which of the following best describes the inefficiency created by a price floor in the labor market?

Accepted Answer

Deadweight loss due to underemployment of labor.

Price Controls: Rent Ceilings and Minimum Wage in Microeconomics

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