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Tutorial 2
Question 4
Presented by: Kevin Lee Kah Soon
Answer: Rent control is an example of price ceiling. It is the legal maximum above which an owner of a property cannot charge those who rent their property.
A binding price ceiling is set below the equilibrium price while a non binding price ceiling is set above the equilibrium price.
Answer: A binding price ceiling will have make shortages while a non binding price ceiling will have no effect on the market outcomes.
(i) price paid by the customers;
(ii) price received by the sellers; and
(iii) Tax burden borne by sellers.
Answer: Price paid by the customers will increase as customers share the tax burden with the sellers.
Answer: Price received by the sellers will decrease as seller need to share the tax burden for the particular product.
Answer: The tax burden will fall more on the seller if demand is elastic or supply is inelastic whereas the tax burden will fall less on the seller if demand is inelastic or supply is elastic.
(i) RM 50,000.
(ii) RM 100,000.
The government imposes a price ceiling of RM50000. Because the price ceiling is below the equilibrium price of RM85000, the market price equals RM85000. At this price, the Qd>Qs, so there is a shortage.
The government imposes a price ceiling of RM100000. Because the price ceiling is above the equilibrium price of RM85000, the price ceiling have no effect, and the market can reach the equilibrium of demand & supply.