Question

.1. The table below shows the demand for and supply of rental housing in Windhoek. The city govemment is considering imposing a rent ceiling of NS700 a month. Help the government to analyze the effects of the proposed rent ceiling. dollars per month) (units per month units per month) 500 600 700 800 900 1,200 1,000 800 600 400 200 100 0 100 Draw the demand and supply curves. With no rent ceiling, what is the rent and how many apartments are rented? a) [5 marks] b) With the rent ceiling. what is the rent and how many apartments are rented? What is the shortage of housing? Explain 4 marks] Page 12 of 13 c) If the rent ceiling is strictly enforced, what is the maximum price that someone is willing to pay for the last unit of housing available? Is the housing market efficient? Explain 4 marks) ) If a black market develops, how high could the black market rent be? Explain your answer 4 marks) 3.2. The table above shows the demand and supply schedules for the market for coffee in Ondangwa. A tax on coffee of 75 cents per pound is proposed and the local government asks you to examine the effects of the tax tity demanded y supplied dollars 80 60 40 120 0 0 40 80 20 Draw the demand and supply curves. If there is no tax on coffee, what is the price and how many pounds are sold? a) [5 marks) b) With the tax, what is the price that consumers pay? What is the price that sellers receive? How many pounds of coffee are sold? [5 marks) What is the government's total tax revenue? How much of the 75¢ per pound tax is paid by buyers? How much is paid by sellers? c) [5 marks) [2 marks) [2 marks) d) If there are no external costs and benefits, what is the efficient level of coffee production? e) If the tax is imposed, will the level of production be efficient? Why or why not?

Answer 1

(3.1)

(a) Without rent ceiling, equilibrium occurs when quantity demanded equals quantity supplied.

Equilibrium quantity = 400

Equilibrium rent = $900

Demand and supply curves as follows.

(b) With rent ceiling,

Rent = $700

Quantity demanded = 800

Quantity supplied = 200

Since tenants can rent only the number of housing that house-owners offer to rent, quantity of rent is 200.

Shortage = Quantity demanded - Quantity supplied = 800 - 200 = 600

(c) When quantity = 200, from quantity demanded function we see that quantity demand of 200 is associated with a price of $1,000. This is the maximum price at this quantity. The housing market is not efficient because the market does not clear, since all house-seekers cannot get a house for rent at lower ceiling rent, which gives rise to a social inefficiency (deadweight loss).

(d) The blck market rent could be the maximum willingness to pay by rent-seekers, which is $1,100.

NOTE: As HOMEWORKLIB Answering guidelines, first question is answered.