Microeconomics Study Set 47
Quiz 4 :
Supply and Demand
The labor market is a huge element of the broader resource market. Essentially, there is not just one market for labor, but there are several labor markets, one for each different set of experience, skill and occupational category. Now according to the situation given in the question, if the demand for housing will increase, the demand for other resources will also increase like, labor, carpenters, plumbers and electrician. This will cause to increase in the demand of these kinds of employees, and will also increases the wages as the supply will remain the same.
If the town council enacted the law setting the maximum price for house rent at $400 per month then following effects will occur in the given situations. a) The quality of renting houses will hamper as the owner will get the fixed amount and may not intend to maintain the quality. b) The amount for rental houses will be reduced, as owner will get fixed amount which may not be sufficient to continue, they may start to use their houses for other purposes. c) The incentive of landlords to preserve their property will reduce because they will be only getting the amount fixed by the housing council. d) Fixing the maximum price for house rent may create discrimination; landlords may prefer to give their house to the students belonging to their communities only. e) After fixing the maximum price for house rent, students will face the difficulty to find the houses, because the demand for houses will increase and the supply will decrease as many landlords will withdraw from the business, this will result the shortage of houses for rent. f) Yes, it may develop black market in house renting business, because after price ceiling the supply will be less than the demand.
The difference between Price floor and price ceiling is given in the table below: Draw figure showing price floor: Figure 4.3a Explanation of figure 4.3 a: The price floor is set above the equilibrium price P, it creates a surplus (Qb - Qa). A price floor is set in case of agricultural products so that the farmers are able to get a higher price for their products. Draw figure of price ceiling: Figure 4.3b Explanation of figure 4.3b: The price ceiling is set below the equilibrium price P, it creates a shortage (Qb - Qa). A price floor is set in case of certain products so that the buyers are not charged very high prices for the products. It results in black marketing and shortages. If a price ceiling is set below the equilibrium, it will result in a shortage of the product, as shown in figure 4.3b, it will lead to black marketing. Since, the price is below the equilibrium price there will be further decline in the supply of the good as the sellers will resist from selling at such low prices. The quality of the good will also deteriorate. Since the sellers cannot charge a higher price they will reduce the quality of their good in order to reduce their cost of production and increase their margin of profit.
There is no answer for this question