Microeconomics Assignment: Analyzing Rent Control and Equilibrium

This microeconomics assignment explores the effects of rent control and market equilibrium, along with an analysis of externalities. It examines how a rent ceiling imposed by the government affects the low-cost housing market, considering scenarios where the ceiling is above and below the equilibrium price. The assignment also discusses the potential for black markets to emerge and the inefficiencies that can arise from rent regulation. Furthermore, it analyzes market equilibrium using supply and demand equations, calculating equilibrium price and quantity. The impact of positive externalities is explored, illustrating the concept of deadweight loss and the role of government subsidies in promoting the consumption of goods with positive externalities. Desklib offers a platform to access this and many other solved assignments for students.

Running head: MICROECONOMICS
Microeconomics
Name of the student
Name of the University
Author Note

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Table of Contents
Answer 2:...................................................................................................................................2
Answer 3:...................................................................................................................................4
References:.................................................................................................................................6

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Answer 2:
450 500 550 600 650 700 750
0
500
1000
1500
2000
2500
3000
Quantity demanded (rooms) Quantity suplied (rooms)
a.
The government imposes a rent ceiling of $650 while the equilibrium amount of rent
is $ 600. This cannot affect the low-cost housing market, as rent will remain at $600 per
month (Hatfield, Plott and Tanaka 2016). At this price, 2000 rooms will be rented and the
housing market can be formed efficiently.
b.
When government enforces a rent ceiling at $550, it goes down the equilibrium price
and at this situation 2000 room will be provided for rent. However, the market will
experience a shortage of rooms and consequently, the low-cost housing market will work
inefficiently.
c.
In black market, price of a room is determined by the maximum amount that a person
wants to pay for the last room. A person wants to pay $600 for 2000 rooms

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Rooms in a black market will be allocated at comparatively higher prices than the
regulated rent through applying various processes that can avoid rent regulations, such as
maintenance fees, key money or an exaggerated fee to change locks that could increase the
rent to $600 per month.
d.
Low cost housing market can help people to afford houses during the time of housing
crisis. However, from above discussion, it can be stated that market can experience
inefficiency and black market.

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Answer 3:
QD = 500 – 5P .. (1)
QS= 5P ..... (2)
a) Equating demand and supply equation, market equilibrium quantity and price of
equation can be obtained.
500 – 5P = 5P
 10 P = 500
 P = 50
Hence, equilibrium price is 50
Through substituting this value in equation 1, equilibrium quantity of education can be
obtained.
Q = 500 – 5*50
 Q = 500 – 250
 Q = 250
Hence, the market equilibrium quantity of education is 250 unit.
b.
Due to positive externality, social marginal benefit (MB social) curve lies above the
individual marginal benefit curve (MB individual) (Myatt and Wallace 2015). The shaded are
has represented dead-weight loss while marginal cost curve has positive slope.
c.

MC
MBi
MB social
Price
OutputQ0
Dead weight loss
Q1
50+5
50
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d.
To give consumers more opportunities for consuming good, which has positive
externality, the government can provide subsidy to producers for producing more. This
further can increase marginal benefit.

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References:
Hatfield, J.W., Plott, C.R. and Tanaka, T., 2016. Price controls, non-price quality
competition, and the nonexistence of competitive equilibrium. Games and Economic
Behavior, 99, pp.134-163.
Myatt, D.P. and Wallace, C., 2015. Cournot competition and the social value of
information. Journal of Economic Theory, 158, pp.466-506.