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 1 - Rent Control
(a) Use the market diagram to illustrate the imposition of a rent ceiling above the
(b) The equilibrium price in the housing market is very high. What do you think will happen if the government imposes a very high
(c) Can you identify any losses or gains? Explain.
Question 2 -
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.
Learning Activity 5.2:
Question 3 - Taxation
Suppose the federal government requires beer drinkers to pay a $2 tax on each case of beer purchased.
(a) Draw a supply-and-demand diagram of the market for beer without the tax. Show the price paid by consumers, the price received by producers, and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers?
(b) Now draw a supply-and-demand diagram for the beer market with the tax. Show the price paid by consumers, the price received by producers, and the quantity of beer sold. What is the difference between the price paid by consumers and the price received by producers? Has the quantity of beer sold increased or decreased?
(c) Can you identify any government revenues?
(d) Is there any inefficiency, and if so, can you define it and label it on the graph?
(e) If the producer has an inelastic supply curve, which market participant has the bigger tax burden? Explain.
Question 4
Given:
QD = 160 -5P
QS = -11 + 4P
In addition, the government imposed a $3.00 tax on the buyer.
Calculate the following:
(a) The equilibrium price and
(b)
(c)
(d) Producer surplus after the tax.
(e)
(f) Government revenue.
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