Answer to Question #266193 in Microeconomics for anu

Question

True, False, or Uncertain. To have any credit you should justify your answer and support

it with the proper graph.

a. Consumers pay more of a per bottle tax on beer, the more elastic is the demand curve for beer. [8 points]

b. Effective rent control makes everyone who is affected better off. [7 points]

Answer 1

Solution:

a.). False

Consumers benefit more, in general, when the demand curve is more inelastic because the shift in the supply results in a much lower price for consumers.

This is depicted by the below graph:

 

 

b.). False.

Not everyone affected is better off, some are worse off. It leads to housing shortages and less incentive from landlords in keeping the houses in order due to reduced landlords. In the long run, it tends to lead to a fall in rental supply since some landlords leave the market, including the creation of shadow markets to exploit consumers.

This is depicted by the below graph: