Certified Public Accountant (Business Environment & Concept): BUSINESS-ENVIRONMENT-AND-CONCEPTS

Correct Answer: C

Choice "c" is correct. A city ordinance that freezes rent prices (such as rent control and rent stabilization in New York City) may cause the quantity demanded for rental space to exceed the quantity supplied. This occurs if the rent controlled price is set below the market clearing price. At the controlled price, the quantity supplied will be constrained due to the low rent prices for the rent-controlled and rent-stabilized properties; builders will not want to build and rent properties for less than they are worth on the open market. The quantity demanded for the rental space will still be artificially high due to the city ordinance, which sets the controlled price below the market price. Thus, the quantity demanded will exceed the quantity supplied. New York City rent control is a perfect example of the effect of a price ceiling and the problems that it can cause. Choice "a" is incorrect. A city ordinance that freezes rent prices will not cause the demand curve for rental space to fall. Price changes cause movements along the demand curve, not shifts in the demand curve. Choice "b" is incorrect. A city ordinance that freezes rent prices will not cause the supply curve for rental space to rise. Price changes cause movements along the supply curve, not shifts in the supply curve. Choice "d" is incorrect. A city ordinance that freezes rent prices will not cause the quantity supplied to exceed the quantity demanded. This choice is backwards.

Correct Answer: C

Choice "c" is correct. $25,150,000 costs to achieve residual income target of $2 million.

Choices "a", "b", and "d" are incorrect, per the above calculation.

Correct Answer: D

Choice "d" is correct. The total cost for a standard account is:

Cost per year for premium is cost of the extra amount ($2,000) that Kemple must maintain in the account.

Total per year premium (10% ?$2,000) = $200

The premium account will save $16.

Choices "a", "b", and "c" are incorrect, per the above calculation.