Microeconomics Questions on Rent Control, Taxation, and Technological Advances

Question 1

 A. Show a housing market with a nonbinding rent control (price ceiling).

 

 B. Show this on a graph.  Show a housing market with a binding rent control (price ceiling). Does this create a shortage or surplus?

 

 C . Show this on a graph clearly. Who are helped by the binding rent control and those who are hurt by the binding rent control. ?

 

D . If there is an immigration (out of country) that reduces population, what happens to shortage or surplus? Why? (Label the axes and curves clearly. Show the equilibrium quantity and wage.)

A . In a supply-and-demand diagram (with a positively sloped supply and negatively sloped demand curve), A. (3 points) Show how a tax on car buyers of $500 per car affects the quantity of cars sold and the price of cars. (Label the equilibrium price as P1 and equilibrium quantity as Q1. Label the new equilibrium price and quantity as P2 and Q2.)

 

B.  In another diagram, show how a tax on car sellers of $500 per car affects the quantity of cars sold and the price of cars. In both diagrams, show the change in the price paid by car buyers and the change in the price received by car sellers.

 

C.  If supply of cars is more elastic relative to the demand, who pays more of the tax, buyers or sellers (tax incidence)?

 

 D. Show this also graphically.  Now assume the supply curve is perfectly elastic. Who bears the burden of the tax now?

 

 E. What happens to the price paid by consumers in this case? Show this also graphically. 

 A. Suppose a technological advance reduces the cost of making computers. Draw a supply-and-demand diagram to show what happens to price, quantity, consumer surplus, and producer surplus in the market for computers.

 

  B. Computers and typewriters are substitutes. Use a supply-and-demand diagram to show what happens to price, quantity, consumer surplus, and producer surplus in the market for typewriters. Should typewriter producers be happy or sad about the technological advance in computers?

 

  C. Computers and software are complements. Draw a supply-and-demand diagram to show what happens to price, quantity, consumer surplus, and producer surplus in the market for software. Should software producers be happy or sad about the technological advance in computers?

 

 D. Does this analysis help explain why software producer Bill Gates is one of the world’s richest men?