Why do rent ceilings lead to shortages and black markets?
What will be an ideal response?
Rent ceilings that are set below the market equilibrium price for apartments lead to shortages for two reasons. First, the lower price increase the quantity of apartments demanded. Second, the quantity of apartments supplied decreases and, over time, the supply decreases even more because of the lower rent. When the quantity demanded exceeds the quantity supplied, a shortage is created. Faced with the inability to obtain the product they want, in this case, housing, people use bribes and other inducements in the black market to increase their chances of moving up the waiting list that emerges in the rent-controlled apartment market. Not everyone participates in the black market, but rent ceilings will favor those people willing to engage in illegal transactions.
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The economy pictured in the figure below has a(n) ________ gap with a short-run equilibrium combination of inflation and output indicated by point ________. 
A. recessionary; B B. recessionary; C C. recessionary; A D. expansionary; A
Assume that there is an improvement in the technology used by firms in a perfectly competitive industry that is initially in long-run equilibrium. In the short run this would cause:
A) an increase in the firm's economic profit. B) a decrease in the firm's economic profit. C) no change in the firm's economic profit. D) cannot be determined with the information given.
Figure 9.1 shows the cost structure of a firm in a perfectly competitive market. If the market price is $40 and the firm is currently producing the profit maximizing output level, its total variable cost is:
A. $12,500. B. $14,300. C. $19,800. D. $27,000.
Which statement is true?
A. Nations should strive for self-sufficiency. B. The U.S. balance of trade has always been positive. C. Our biggest trade deficit was a little over $150 billion. D. Our balance of trade turned negative in the mid-1970s.