City-wide lockdowns were implemented in Sydney by the NSW government in July-August 2021 in response to new COVID-19 cases detected in the community. Assuming a perfectly competitive market and using a market demand and supply model: Illustrate the market equilibrium for Sydney apartments before the city-wide lockdown was implemented. (b) Explain, with the aid of a new diagram, the impact of the Sydney city-wide lockdown on the market from part (a) assuming the construction industry was still allowed to operate normally. (c) Suppose the NSW government was considering doubling the first-home buyer’s grant. Explain the impact of this on the market for Sydney apartments and illustrate this on your diagram from part (b).
City-wide lockdowns were implemented in Sydney by the NSW government in July-August 2021 in response to new COVID-19 cases detected in the community.
Assuming a
- Illustrate the
market equilibrium for Sydney apartments before the city-wide lockdown was implemented.
(b) Explain, with the aid of a new diagram, the impact of the Sydney city-wide lockdown on the market from part (a) assuming the construction industry was still allowed to operate normally.
(c) Suppose the NSW government was considering doubling the first-home buyer’s grant. Explain the impact of this on the market for Sydney apartments and illustrate this on your diagram from part (b).
2. Assume that builder XYZ is a
- Draw a diagram to illustrate XYZ making economic profits before the implementation of the hard lockdown in Sydney’s Southwest. On your diagram clearly indicate the quantity XYZ is choosing to produce and the
price XYZ is choosing to charge.
(b) Assuming costs remain constant and that that the construction industry is still allowed to operate normally, explain the impact of Sydney’s lockdown on builder XYZ’s demand from Q2 part (a). With the aid of a new diagram, discuss XYZ’s static profit or loss situation after these changes. Clearly indicate the quantity XYZ is choosing to produce and the price XYZ is choosing to charge.
(c) Assume that XYZ survives the lockdown and stays in business. If the NSW government decides to double the first home buyer’s grant, explain the impact on XYZ’s demand. With the aid of a new diagram, discuss XYZ’s static profit or loss situation after this change takes place. Clearly indicate the quantity XYZ is choosing the produce and the price XYZ is choosing to charge.
This question assumes that the market for apartments in Sydney is perfectly competitive.
- Evaluate the decision of the NSW government to double the first home buyer subsidy in terms of Pareto efficiency and fairness.
- Now suppose the NSW government decides not to help first home buyers in Sydney any longer and removes the existing subsidy. Evaluate this decision in terms of Pareto efficiency and fairness.
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