Market Efficiency and Government Intervention (Chapter 21) Go to chapter 21 in your textbook and read Application 2 Rent Control and Mismatches: Applying the concepts: Why does the market equilibrium maximize the value of a market? This assignment is associated with the learning outcome relative to understanding market equilibrium and efficiency.
1. Recall the application on rent control and mismatches. Under rent control, the government sets a maximum price for housing, decreasing the quantity supplied and the total value of the market. Rent control and other maximum prices cause ________ possibly ________.
A) inefficiency; mismatches.
B) efficiency: mismatches
C) mismatches: equilibrium
D) none of the above
2. Market equilibrium maximizes the total surplus in a market and therefore it is efficient.
A) True
B) False
3. Market equilibrium guarantees that all mutually beneficial transactions take place.
A) True
B) False
4. A maximum price below the market equilibrium price will lower the total surplus of the market.
(A) True
(B) False
5. Do price controls reduce the total surplus of a market because they prevent mutually beneficial transactions? Yes or No? Explain your answer.