Suppose the Berkeley city government has been using a binding price ceiling (rent control) to help renters deal with the high price of Bay Area housing. （a）Show how the city could instead use a per-unit subsidy physically paid to landlords (the suppliers of rental housing) to bring about the same low price for rental housing for buyers as the price ceiling. b) Would such a subsidy cause a deadweight loss? Would it cause a misallocation of either consumption or production? (Note: You do not need to discuss the deadweight loss associated with a price ceiling—just any deadweight loss associated with the subsidy.)
Suppose the Berkeley city government has been using a binding
（a）Show how the city could instead use a per-unit subsidy physically paid to landlords (the suppliers of rental housing) to bring about the same low price for rental housing for buyers as the price ceiling.
b) Would such a subsidy cause a
a) When subsidy per unit will be paid physically to the landlords, then it will lead to an outward shift of the supply curve which will cause low price for rental housing as lower equilibrium price will be achieved.
initially P1 is the price for rental housing, now providing subsidy per unit to landlords, supply curve will shift outwards to S2 which will bring down the price lower than the equilibrium price. Just like price ceiling, proving subsidy per unit can also bring about same low price for rental housing.
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