If the government removes a binding price floor from a market, then the price paid by...

If the government removes a binding price floor from a market, then the price paid by buyers will

increase, and the quantity sold in the market will increase.

increase, and the quantity sold in the market will decrease.

decrease, and the quantity sold in the market will increase.

decrease, and the quantity sold in the market will decrease.

Under rent control, bribery is a mechanism to

bring the total price of an apartment (including the bribe) closer to the equilibrium price.

allocate housing to the poorest individuals in the market.

force the total price of an apartment (including the bribe) to be less than the market price.

allocate housing to the most deserving tenants.

Solutions

Expert Solution

If the government removes the binding price floor from the market than the price of the good will fall to the equilibrium level. As the price floor was binding, the price at equilibrium must have been lower than the price floor. If the price floor is removed than the price will come down to the price set by the demand and supply forces in the market. Therefore the correct option should be that the price paid by buyers will decrease, and the quantity sold in the market will increase considering the increase in demand due to fall in price.

Under rent control, bribery is a mechanism to bring the total price of an apartment (including the bribe) closer to the equilibrium price. The rent control will increase the demand for rented homes and reduce the supply of homes in the market. This will increase the competitions among the buyers to get a home. However many tenants will remain homeless. To avoid this condition they are forced to pay a bribe for getting a rented home.

Rahul Sunny answered 1 year ago

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