Answer to Question #191358 in Microeconomics for HAFIZ MUHAMMAD LUQ

Question

What kind of price rationing strategy should be implemented by government to provide renters with houses at affordable price? Also mention the impact of this strategy on equilibrium quantity and equilibrium supplied of houses?

Answer 1

The government can impose price ceilings so as to provide renters with houses at affordable prices.

The ceiling price is constant, causing the equilibrium quantity to shift ;the quantity demanded rises while the quantity supplied falls. It results in a shortage of the quantity Qd – Qs. Furthermore, the price limit results in a deadweight loss.