Macroeconomics: Principles, Problems, & Policies
20th Edition
ISBN: 9780077660772
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 5, Problem 3DQ
To determine
The difference between the rent seeking and the profit maximization.
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Assuming normal demand and supply relationships, show how income transfers to consumers and subsidies to producers of housing could be used to alleviate the harmful effects of rent controls.
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Hello, I need help to answer these questions. (The class is Microeconomic)
Read the NYT article "The Perverse Effects of Rent Regulation" (7/23/13). Brainstorm the pros and cons of rent control laws. Explain why this issue illustrates a trade-off between efficiency and equity (fairness). How do rent control laws cause the “market to strike back”?
Below is the link of the article
https://www.nytimes.com/2013/07/28/magazine/the-perverse-effects-of-rent-regulation.html
Thank you!
In an unregulated, competitive market we could calculate consumer surplus if we knew the equations representing supply and demand. For this problem assume that supply and demand are as follows:
Supply P = 4 + 0.116Q
Demand P = 25 - 0.10Q
where P represents unit price in dollars and Q represents the number of units sold each year.
Calculate the annual value of aggregate consumer surplus.
Chapter 5 Solutions
Macroeconomics: Principles, Problems, & Policies
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- Distinguish between market failure and government failure. Does rent-seeking behavior occur only as a result of government failure? Explain your answer.arrow_forwardSuppose the proposed 3% tax on social media advertisements becomes law. Classify each group according to whether the tax makes it better or worse off. European governments Better off Social media users Answer Bank Firms that use social media advertising Worse off Firms that rent billboard spacearrow_forwardConsumer surplus measures the benefit to consumers of purchasing a product. Producer surplus measures the benefit to producers of selling a product. These tools used together can help us better understand how changes in a market impact efficiency and equity. Use these tools to evaluate the impact of imposing a usury law on the market for loans. Assume that the market price (APR) of loans before the usury law is 46%. How will it affect efficiency? How will it affect equity? Explain.arrow_forward
- Which of the following would economists expect to happen in a state that imposes a binding cap (or quota) on the number of licenses available for manicurists and enforces that manicurists must have an occupational license? Group of answer choices There is a decrease in the number of manicurist jobs and the price of getting a manicure decreases There is an increase in the number of manicurist jobs and the price of getting a manicure decreases There is an increase in the number of manicurist jobs and the price of getting a manicure increases There is a decrease in the number of manicurist jobs and the price of getting a manicure increasesarrow_forwardPart 1. The figure below shows the market for rides are services during a typical day. Assume that d1 represents the demand for rides during normal periods. Therefore, on a normal day the normal price for a ride is $16 and 6000 rides are taken. If congress bans surge pricing, it is effectively imposing a price ceiling of $16 shown by the horizontal line labeled PC. Suppose that there is an increase in the demand for rides. Use the drag tool to illustrate the effect of the surge ban, assuming it leads to a shortage of 4000 rides. Part 2. Consider alternative modes of transportation to rides are services such as taxi cabs. How would the ban on surge pricing impact the market for rides by taxi cabs? Use the drag tool to illustrate on the market graph below.arrow_forwardUnder rent control, bribery is a potential mechanism toarrow_forward
- Explain where, in relation to the market equilibrium price, a price floor is set in order to be successful. Historically, what has been the result of agricultural price supports? Why do governments legislate agricultural price supports?arrow_forwardThe graph below shows the supply and demand curves for mohair, a wool obtained from angora goats. Government price supports were instituted during world war 2, when a steady supply of wool was needed for soldiers’ uniforms. The price supports are still in effect even though market conditions have changed. Using the straight line tool, draw the lowest possible binding price floor you can, as a single horizontal line all the way across the graph from one edge to the other.arrow_forwardUse the following figure to answer the question: What is the consumer surplus in this market when there is no government intervention? Price A B C D E F Supply Price above equilibrium Demand Quantity A+B+C (area under the demand over to the quantity resulting from regulation) O A+B+E (area under the demand above the equilbrium price) O A+B (area above equilbrium price and below demand, up to the quantity with the restriction) O A (area below demand and above the price above the equilbrium line)arrow_forward
- The shortages created by rent controls is largest when demand by tenants is ........and supply by landlords is......... more elastic; less elastic more elastic; more elastic Ⓒunitary elastic; unitary elastic less elastic: less elastic less elastic; more elasticarrow_forwardSuppose the rent control (price ceiling) in California will be nullified for a year and that market rents will now be institutionalized. Assume that all apartment units are of identical structure and so are offered at the same rent. To address the plight of the residents, especially those who may be unable to pay the market rent, an income subsidy will be given to all low-income households equal to the difference between the old controlled rent and the new market rent. Are the renters or tenants better or worse off as a result of these policies? What about the rentees or the landlords, are they better or worse off? Explain your answers to get full credit.arrow_forwardIn this week’s discussion we focus on the reasons for, and methods of, government intervention in the market mechanism. We also take the opportunity to review and comment on the project work of all the groups. Minimum wage rate and rent control are two common examples of how government (one provincial, the other typically municipal) policies have a direct economic impact. Considering what you have learned in this unit, discuss the impacts of the minimum wage rate and rent control policy on consumers, producers, and society. Draw on the readings and specific examples you can find in your community to argue both for and against such policies.arrow_forward
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