Q: Which formula represents the deadweight loss caused by a price ceiling in a competitive market?

$$DW = \frac{1}{2} \times (Q^* - Q_c) \times (P^* - P_c)$$

Question 1

Which of the following best describes a price ceiling?

Accepted Answer

A legally established maximum price a seller can charge for a good or service.

Question 2

Suppose the government imposes a rent ceiling below the equilibrium rent in a city. What is the most likely immediate effect?

Accepted Answer

A shortage of rental housing as quantity demanded exceeds quantity supplied.

Question 3

In the long run, what is a likely consequence of a rent ceiling set below equilibrium, as seen in the San Francisco case study?

Accepted Answer

A persistent housing shortage and underproduction of housing.

Question 4

Which formula represents the deadweight loss caused by a price ceiling in a competitive market?

Accepted Answer

$$DW = \frac{1}{2} 	imes (Q^* - Q_c) 	imes (P^* - P_c)$$

Question 5

What is 'search activity' in the context of rent ceilings?

Accepted Answer

The time spent by renters looking for someone with whom to do business when there is a shortage.

Question 6

If a minimum wage is set above the equilibrium wage, what is the expected effect on employment in the market for low-skilled labor?

Accepted Answer

Employment will decrease, resulting in unemployment and deadweight loss.

Question 7

According to the Seattle minimum wage study, what was the estimated price elasticity of demand for low-skilled workers?

Accepted Answer

$$-2.6$$

Question 8

Which of the following is a likely unintended consequence of rent control policies in the long run?

Accepted Answer

Conversion of rental properties to owner-occupied condominiums.

Question 9

A production quota set below the equilibrium quantity will most likely result in which of the following?

Accepted Answer

A decrease in quantity supplied and an increase in price.

Question 10

If the demand for corn is inelastic and a production quota is imposed, what happens to aggregate farmers' total revenue?

Accepted Answer

Total revenue increases because price rises more than quantity falls.

Question 11

Which of the following best explains why minimum wage laws can be considered unfair according to both 'rules' and 'results' criteria?

Accepted Answer

They block voluntary exchange and make some workers worse off.

Question 12

What is the opportunity cost of housing under a rent ceiling?

Accepted Answer

The rent plus the opportunity cost of search activity.

Question 13

Which of the following is NOT a typical way that scarce housing is allocated under a rent ceiling?

Accepted Answer

Auction to the highest bidder

Question 14

If the demand for corn is elastic and a production quota is imposed, what happens to aggregate farmers' total revenue?

Accepted Answer

Total revenue decreases because quantity falls more than price rises.

Question 15

Which equation best represents the total revenue for farmers after a quota is imposed?

Accepted Answer

$$TR = P_{quota} 	imes Q_{quota}$$

Question 16

What is a likely effect of a minimum wage set above equilibrium on job search costs?

Accepted Answer

Job search costs increase for workers.

Question 17

Which of the following best describes the effect of rent control on gentrification, according to the San Francisco study?

Accepted Answer

Rent control contributes to gentrification by encouraging conversion to higher-end housing.

Question 18

Which of the following is a possible result of illegal market activity under a rent ceiling?

Accepted Answer

Renters and landlords make arrangements at effective rental rates higher than the legal ceiling.

Question 19

Suppose a minimum wage increase leads to a 6% reduction in hours worked and a 3% increase in hourly wages for low-wage jobs. What is the net effect on total payroll for those who remain employed?

Accepted Answer

Total payroll decreases because the reduction in hours outweighs the wage increase.

Question 20

Which of the following statements about production quotas is correct?

Accepted Answer

Production quotas set above equilibrium quantity have no effect.

Government Actions in Markets: Price Ceilings, Price Floors, and Production Quotas

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