Question 1 Not yet answered P Flag question Paints out of 1 Rgure: Short and Lon

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Question 1 Not yet answered P Flag question Paints out of 1 Rgure: Short and Long Run Shortages gong and the long-run shortage is Use the figure. At a rent-controlled price af $800, the short-run shortage of apartments is Select one: O a. 4000: 12,000 b, 8000: 12000 O C. 12000: 4,000 o d. 8,000: 4,000 Question 2 Not yec answered Points our of 1 r Rag question Which of the following statements is NOT true regarding subsidies? Select one a·Similar to a tax a subsidy also creates a deadweight loss. o b. The main beneficiary of a subsidy is the party that directly receives the check from the o c subsidies create inefficent increases in trade. o d. When a subsidy is present, the price received by sellers exceeds the price paid by buyers Question 3 Not yet answered Points out of 1 P Flag question A "quality waste" refers to: Select one O a an increase in quality under a price ceiling O b. a decrease in quality under a price celling O c. a decrease in quality under a price floor. O d. an increase in quality under a price floor.

Explanation / Answer

1.

At rent controlled price of $800, the demand is 16000 while the short run supply is 12000 and long run supply is 4000. Thus the shortage of apartments in short run is (16000-12000) or 4000 apartments and in long run is (16000-4000) or 12000 apartments. (a)

2. Yes, subsidies create deadweight loss and thus inefficient. In case of subsidy, the price received by seller is greater than what buyers pay as the difference is being paid by the government. The beneficiaries of the subsidy are not only those who are getting them from government as it reduces the cost (producers) or price (consumers) of the good. The consumer subsidy increases the demand which increases the price of the good and thus the output, so the producers are also benefitted from the same, though via government. (b)

3. When there is a decrease in the price floor, the sellers would not compete and instead resort to increase in their quality to compensate them for the lesser demand and profits. The price floor thus causes a wasteful increase in the quality of the good or service. (d)

4. The short run supply of apartments is 11000 (as short run supply curves are steeper) and eth demand is 14000, thus a shortage of 3000 apartments. (b)

5. When the demand is less than the supply of a good, the price is thus higher than the equilibrium price. The binding price floor is that price which is set above the equilibrium. (c)

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