**Case Study: Price Cap in a Competitive Housing Market****Case Description:**This study examines the impact of a *Price Cap* in a *Competitive Housing Market* where the *Supply* is relatively *inelastic* and the *Demand* is relatively *elastic*.**Questions:**a) How would you sketch the effect of such a Price Cap?b) Would this situation lead to a *Surplus* or a *Shortage* of *Housing*?**Discussion Points:**- A *Price Cap* is a regulatory measure that limits the maximum price a seller can charge for a good.- When *Supply* is *inelastic*, producers cannot easily increase the quantity supplied in response to price changes.- An *elastic* *Demand* means that consumers are sensitive to price changes, and a lower price will significantly increase the quantity demanded.**Diagram Explanation:**(Since there's no diagram provided, here’s a detailed explanation for sketching it.)1. **Supply Curve:** It should be steep, showing inelastic supply which doesn’t change much with price.2. **Demand Curve:** It needs to be relatively flat, representing elastic demand, showing significant change with price variations.3. **Equilibrium Point:** Identify where the demand and supply curves intersect at initial equilibrium without a price cap.4. **Price Cap Line:** A horizontal line below the equilibrium price to show the imposed cap.5. **Resulting Quantity:** Illustrate the gap between quantity supplied and quantity demanded at the price cap. This gap indicates a shortage of housing.This educational content is intended to help students understand the basic principles of market dynamics under regulation.

A price cap is a government-imposed limit on the maximum price that can be charged for a specific…

Case: The effect of a Price Cap on a Competitive Housing Market where Supply is relatively inelastic and Demand is relatively elastic. Questions: a) Sketch the Effect? b) Will there be a Surplus or a Shortage of Housing?

Case: The effect of a Price Cap on a Competitive Housing Market where Supply is relatively inelastic and Demand is relatively elastic. Questions: a) Sketch the Effect? b) Will there be a Surplus or a Shortage of Housing?

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ISBN:9780190931919

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Publisher:NEWNAN

Chapter1: Making Economics Decisions

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Risk and Uncertainty

Uncertainty refers to a situation when there is one possible outcome of a decision but where the probability of occurrence of each particular outcome is not known or cannot be estimated.

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**Case Study: Price Cap in a Competitive Housing Market**

**Case Description:**

This study examines the impact of a *Price Cap* in a *Competitive Housing Market* where the *Supply* is relatively *inelastic* and the *Demand* is relatively *elastic*.

**Questions:**

a) How would you sketch the effect of such a Price Cap?

b) Would this situation lead to a *Surplus* or a *Shortage* of *Housing*?

**Discussion Points:**

- A *Price Cap* is a regulatory measure that limits the maximum price a seller can charge for a good.
- When *Supply* is *inelastic*, producers cannot easily increase the quantity supplied in response to price changes.
- An *elastic* *Demand* means that consumers are sensitive to price changes, and a lower price will significantly increase the quantity demanded.

**Diagram Explanation:**

(Since there's no diagram provided, here’s a detailed explanation for sketching it.)

1. **Supply Curve:** It should be steep, showing inelastic supply which doesn’t change much with price.
2. **Demand Curve:** It needs to be relatively flat, representing elastic demand, showing significant change with price variations.
3. **Equilibrium Point:** Identify where the demand and supply curves intersect at initial equilibrium without a price cap.
4. **Price Cap Line:** A horizontal line below the equilibrium price to show the imposed cap.
5. **Resulting Quantity:** Illustrate the gap between quantity supplied and quantity demanded at the price cap. This gap indicates a shortage of housing.

This educational content is intended to help students understand the basic principles of market dynamics under regulation.

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