Review
5. The following questions are about resource allocation in the
presence of price ceilings and price floors.
a. A binding price ceiling leads to excess demand. What are
some methods, other than price, of allocating the
available supply?
b. A binding price floor leads to excess supply. How might
the government deal with this excess supply?
c. Why might the government choose to implement a price
ceiling?
d. Why might the government choose to implement a price
floor?
6. Explain and show in a diagram why the short-run effects of rent
control are likely to be less significant than the long-run effects.
7. In cities experiencing rapidly growing demand for housing, like
Vancover and Toronto, it is often claimed that the “overheated”
real estate market puts housing out of reach of ordinary
Canadians. Not surprisingly, governments often debate how best
to deal with this issue. Who bears the heaviest cost when rents
are kept artificially low by each of the following means?
a. legislated rent controls
b. a subsidy to tenants equal to some fraction of their rent
c. the provision of public housing which is made available
at below-market rents