Question One
With the aid of carefully labelled diagrams, research the following:
- Externalities
- Public goods
Discuss the roles of government in a market as it relates to correcting for these two types of market failures. 20 marks
Question Two
Recently, a government economist predicted that as a result of the COVID-19 pandemic, the prices of construction materials will fall even lower than builders and buyers expect. However, she warned buyers in the Kingston Metropolitan Area (KMA) not to expect the price of new outputs to fall as the population in the KMA is on the rise. Discuss the economist’s observation, stating whether you agree or disagree. Please give reason for your conclusion. 10 marks
Question Three
Draw hypothetical demand and supply curves for 2-bedroom apartments in the Kingston Metropolitan Area (KMA) and show how the equilibrium price and quantity will be affected by each of the following occurrences: (6 marks)
- The COVID-19 pandemic has resulted in higher lending rates to developers.
- Consumers’ incomes increased and the NHT has lowered lending rates.
- The price of 2 bedroom single family dwellings in the KMA is increasing.
Question Four
Write your answer below each part of the question.
You are proposing a student housing solution in the areas of Barbican and Mona. Data indicate that the demand and supply functions for one bedroom apartments in these areas are:
Qd = 190,000 – r
Qs = 30,000 + 4r
Where Qd is quantity demanded, Qs is quantity supplied and r refers to rent/price per month.
- Solve for the equilibrium rent/price per month. (2 marks)
- What would be the equilibrium quantity of apartments in the area? (2 marks)
- Now suppose that the government has come up with a policy to assist with allocation of student housing and has set a maximum rent of $20,000.00 per month.
- Is this a price ceiling or a price floor and would you expect a surplus or shortage of student rental apartments in these areas? (1 mark)
- Calculate the quantities demanded and supplied at this rent to support your response. (3 marks)
- On the other hand, suppose the government could intervene by restricting the quantity of such apartments to 120,000. Assuming that this number is less than the equilibrium quantity, how much will students have to pay for one-bedroom apartments in these areas?
(2 marks)
- Assume that the government decided to intervene by way of excise taxes. How would a tax on landlords affect the supply of apartments and what will be the most likely impact on demand and the equilibrium rent? Use demand and supply curves in your explanation.
(5 marks)
