The stricter the enforcement of a price ceiling, the
A) smaller is the difference between the black market price and the legal market price of the good.
B) larger is the difference between the black market price and the legal market price of the good.
C) greater is the amount of the good available in total, from either the legal market or the black market.
D) Both answers B and C are correct.
Question 2
Suppose that the price of an identical sport-utility vehicle is 32,000 in U.S. dollars in the United States and 32,000 in Canadian dollars in Canada.
Suppose in addition that the exchange rate between Canada and the United States is one Canadian dollar equals 0.75 U.S. dollar. Does purchasing power parity hold for SUVs between the United States and Canada? A) Yes, because SUVs have the same price in each local currency.
B) No, because SUVs are more expensive in Canada than the United States.
C) No, because SUVs are more expensive in the United States than in Canada.
D) Without knowing interest rates, we can't say.
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