Question

In: Economics

1. Who gains from rent controls? A. construction workers and their union leaders B. high-income people...

1. Who gains from rent controls?

A. construction workers and their union leaders

B. high-income people who live in rent-controlled apartments

C. poor people who have a hard time making enough money to pay high rents

D. landlords

2. Which of the following statements is FALSE?

A. Price controls may take the form of price ceilings or price floors.

B. Rent controls are examples of price floors.

C. The rationing function of prices is not allowed to freely operate when the government imposes price controls.

D. Price ceilings below the equilibrium price can cause black markets to develop.

3. A black market is a market in which

A. goods are traded at prices above their legal maximum prices.

B. sales take place exclusively at outlet prices.

C. goods are sold at outlet prices.

D. sales taxes are effectively doubled.



4. If the supply curve in the figure above shifts from SA to SB while demand remains at DA, then

A. supply has increased.

B. supply has decreased.

C. only quantity supplied increases.

D. the new equilibrium price is P1 and the equilibrium quantity is G.

Solutions

Expert Solution

1) B. high-income people who live in rent-controlled apartments

Rent controls must grant renters greater security over their tenancy and also regulate the rents that they pay. Both are necessary, as otherwise, landlords could force tenants to leave in spite of any security by raising their rents prohibitively.

2) B. Rent controls are examples of price floors.

Price floors, which prohibit prices below a certain minimum, cause surpluses, at least for a time. Rent control, like all other government-mandated price controls, is a law placing a maximum price, or a “rent ceiling,” on what landlords may charge tenants.

3) A. goods are traded at prices above their legal maximum prices.

The black market often sets a price for foreign exchange that is several times the official one. Examples of goods traded in the black market are weapons, illegal drugs, exotic and protected species of animals, and human organs needed for transplant surgeries.

4) A. supply has increased.

Supply refers to the quantity of a good that the producer plans to sell in the market. Supply will be determined by factors such as price, the number of suppliers, the state of technology, government subsidies, weather conditions, and the availability of workers to produce the goods.


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