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Price Ceilings, Price Floors, and Black Markets quiz #3

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  • True or false: A price at or above the price floor is illegal.
    False; prices below the floor are illegal, not at or above.
  • Price ceilings and price floors that are binding have what effect?
    They cause shortages (ceilings) or surpluses (floors) and deadweight loss.
  • Price ceilings are designed to benefit whom?
    They are designed to benefit consumers.
  • Prices tend to be sticky because of what?
    Institutional factors, contracts, and regulations can make prices slow to adjust.
  • The imposition of a price ceiling on a market often results in what?
    It often results in shortages and black markets.
  • For a price ceiling to be a binding constraint on the market, the government must set it where?
    It must be set below the equilibrium price.
  • Price ceilings are designed to benefit whom?
    They are designed to benefit consumers.
  • The graph below represents the textbook market. Calculate the surplus caused by the price floor.
    Surplus is the difference between quantity supplied and quantity demanded at the price floor.
  • What is an example of a government policy that uses a price ceiling, and how does it typically affect the market?
    Rent control is a common example; it usually leads to shortages as more people want to rent at the lower price, but fewer landlords are willing to supply apartments.
  • How do rationing coupons function in markets with price ceilings?
    Rationing coupons allow consumers to buy a limited quantity of a good at the government-set price, helping to allocate scarce goods during shortages caused by price ceilings.