Question

Question 1 - Rent Control

(a) Use the market diagram to illustrate the imposition of a rent ceiling above the market equilibrium price. What can you explain from the graph?

(b) The equilibrium price in the housing market is very high. What do you think will happen if the government imposes a very high price ceiling that is below but very close to the equilibrium price on the housing market, because a politician owns housing units in certain areas? How does that affect the poor and the market for housing?

(c) Can you identify any losses or gains? Explain.

Question 2 - Price Floor

The Agricultural Society persuades the government, in the interest of food security, to impose a price floor on local carrots in order to keep carrot farmers in the business.

(a) Assess the welfare implications of this measure.

(b) Assess the effectiveness of this measure in keeping farmers in carrot farming.

Answer 1

1)