What Is The Rent Ceiling Likely To Be Inefficient?

Markets Prices and Strategies Seminar 11 week 6
1 You have been given the following information about the market for rented one-bedroom flats in your region:
Rent
(pound per month) Quantity demanded Quantity supplied 100 20,000 0
150 15,000 5,000
200 10,000 10,000
250 5,000 15,000
300 0 20,000 Suppose that a rent ceiling of £150 a month is imposed in the housing market described in the table.
a. Draw a diagram to illustrate the impact of the rent ceiling of £150 a month.
b. What is the quantity of housing demanded and supplied with the rent ceiling in place?
c. What is the excess quantity of housing demanded?
d. What is the maximum price that people will be willing to pay for the last unit available? £250
e. What is the value of consumer surplus and producer surplus before the

Is a rent ceiling likely to be inefficient? How would you represent inefficiency in your diagram?

2 The demand for and supply of teenage labour in your area are as follows:

Wage rate
(pounds
per hour) Hours demanded Hours
Supplied
2 3,000 1,000
3 2,500 1,500
4 2,000 2,000
5 1,500 2,500
6 1,000 3,000

a Draw a diagram of the labour market from the table and show the equilibrium wage and employment rate. b What is the level of unemployment at the equilibrium wage? c If the government imposes a minimum wage of £3 an hour for teenagers, what is the level of unemployment amongst teenage labour? d If the government imposes a minimum wage of £5 an hour for teenagers, what are the employment and unemployment levels? e If the minimum wage is £5 an hour for teenagers, is there any evidence in your diagram of inefficiency? f If there is a minimum wage of £5 an hour and demand increases by 1000 hours, what is the level of unemployment?
3 The table shows the market demand and supply schedules for fizzy drinks:
Price
(pence per drink) Quantity demanded (millions per day) Quantity
Supplied
(millions per day)
90 1 7
80 2 6
70 3 5
60 4 4
50 5 3
40 6