Question 1

Suppose the equilibrium rent for apartments in a city is $$1,200 per month. The government imposes a rent ceiling of 900 $$per month. What is the most likely immediate effect of this policy?

Accepted Answer

The quantity of apartments demanded will exceed the quantity supplied, creating a shortage.

Question 2

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

Accepted Answer

A deadweight loss due to underproduction of housing services.

Question 3

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 4

If a rent ceiling is set above the equilibrium rent, what is the effect on the housing market?

Accepted Answer

It has no effect; the market operates as if there were no ceiling.

Question 5

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

Accepted Answer

None of these methods leads to a fair outcome.

Question 6

A minimum wage set above the equilibrium wage rate will most likely result in:

Accepted Answer

Unemployment, as the quantity of labor supplied exceeds the quantity demanded.

Question 7

Which of the following is true regarding the efficiency of a minimum wage set above equilibrium?

Accepted Answer

It creates a deadweight loss and decreases both workers’ and firms’ surplus.

Question 8

Suppose the government imposes a $3 per pack tax on cigarettes. If the demand for cigarettes is perfectly inelastic, who bears the entire burden of the tax?

Accepted Answer

Buyers

Question 9

Which principle states that people should pay taxes according to how easily they can bear the burden?

Accepted Answer

Ability-to-pay principle

Question 10

A production quota set below the equilibrium quantity will most likely result in:

Accepted Answer

An increase in market price and inefficient underproduction.

Question 11

If the supply of a good is perfectly elastic and a tax is imposed, who pays the entire tax?

Accepted Answer

Buyers

Question 12

Which of the following best describes the effect of a subsidy on the market for farm products?

Accepted Answer

It lowers the market price and increases the quantity produced.

Question 13

Consider a market with the following demand and supply equations: $$Q_d = 100 - 5P$$ and $$Q_s = 20 + 3P. If a $$price ceiling of $$P = 10 is $$imposed, what is the resulting shortage?

Accepted Answer

$$Q_d - Q_s = 40$$ units

Question 14

Which of the following is a real-world example of a good with inelastic demand, resulting in buyers paying most of the tax?

Accepted Answer

Gasoline

Question 15

A tax creates a wedge between the price buyers pay and the price sellers receive. The equilibrium quantity after the tax is imposed is found where:

Accepted Answer

The vertical gap between the demand and supply curves equals the size of the tax.

Question 16

Which of the following is NOT a likely consequence of a price ceiling set below equilibrium?

Accepted Answer

Efficient allocation of resources

Question 17

Margaret Thatcher’s poll tax was an example of a lump-sum tax. Compared to a system based on the ability-to-pay principle, lump-sum taxes are:

Accepted Answer

Less fair but more efficient

Question 18

If the government wants to discourage smoking, should it impose the tax on cigarette producers or buyers? What does economic theory suggest?

Accepted Answer

It does not matter; the effect is the same regardless of which side the tax is imposed on.

Question 19

Which of the following best describes the deadweight loss created by a tax?

Accepted Answer

It is the loss in total surplus due to decreased quantity bought.

Question 20

Which of the following statements about subsidies is correct?

Accepted Answer

Subsidies can lead to overproduction and a deadweight loss.

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

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