Question 1

Suppose the government sets a rent ceiling below the equilibrium rent in a city. Which of the following is most likely to occur as a result?

Accepted Answer

A housing shortage and increased search activity

Question 2

A rent ceiling set below the equilibrium rent leads to which of the following outcomes regarding marginal social benefit and marginal social cost?

Accepted Answer

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

Question 3

If the minimum wage is set above the equilibrium wage rate, what is the immediate effect on the labour market?

Accepted Answer

Unemployment is created because the quantity of labour supplied exceeds the quantity demanded

Question 4

Which formula best represents the opportunity cost of housing when a rent ceiling creates a shortage?

Accepted Answer

$$Opportunity\ Cost = Regulated\ Rent + Opportunity\ Cost\ of\ Search\ Activity$$

Question 5

A black market for rental housing is most likely to arise under which condition?

Accepted Answer

When the rent ceiling is set below the equilibrium rent and a shortage exists

Question 6

Which allocation method for scarce housing under a rent ceiling is considered fair according to the fair-rules and fair-results views?

Accepted Answer

None of these methods leads to a fair outcome

Question 7

If a minimum wage is set at $$10 per hour while the equilibrium wage is 9 $$per hour, what is the quantity of labour employed?

Accepted Answer

The quantity demanded at $10 per hour

Question 8

Which area on a supply and demand graph represents deadweight loss when a rent ceiling is imposed below equilibrium?

Accepted Answer

The area between the supply and demand curves from the rent ceiling quantity to the equilibrium quantity

Question 9

A production quota set below the equilibrium quantity in the market for farm products will have which effect?

Accepted Answer

Increase market price and decrease quantity produced

Question 10

When a government subsidy is introduced in a market, what happens to the supply curve and the equilibrium quantity?

Accepted Answer

The supply curve shifts right and equilibrium quantity increases

Question 11

Suppose the government introduces a $$20 per tonne subsidy for farmers. If the market price falls to 30 $$per tonne, what is the total amount received by farmers per tonne produced?

Accepted Answer

$$50$$

Question 12

Which of the following best describes the inefficiency created by a production quota?

Accepted Answer

Marginal social benefit equals market price, which has increased, and marginal social cost has decreased

Question 13

In the market for illegal goods, what is the effect of penalties imposed only on sellers?

Accepted Answer

Supply decreases, price rises, and quantity decreases

Question 14

If both buyers and sellers are penalized in the market for an illegal drug, what happens to the equilibrium price and quantity?

Accepted Answer

Quantity decreases, but the effect on price depends on the relative shifts in supply and demand

Question 15

Legalizing and taxing an illegal good can reduce consumption to the same level as when trade is illegal if:

Accepted Answer

The tax rate is set high enough to decrease demand

Question 16

Which equation best represents the effect of a subsidy on marginal cost?

Accepted Answer

$$MC_{new} = MC_{original} - Subsidy$$

Question 17

A minimum wage law is most likely to increase unemployment among which group?

Accepted Answer

Low-skilled younger workers

Question 18

Which of the following is a plausible consequence of increased search activity in a housing market with a rent ceiling?

Accepted Answer

Higher opportunity cost of housing

Question 19

If the Canadian Dairy Commission sets a production quota for dairy production above the equilibrium quantity, what is the likely impact?

Accepted Answer

The policy will decrease revenue received by dairy producers

Question 20

Refer to the supply and demand model for illegal drugs. If the penalty on buyers is $$JH$$, what happens to the demand curve?

Accepted Answer

It shifts left by the cost of breaking the law

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

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