ECON1056 Price Theory In Economics Assignment Answer


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  • Referencing Styles: Harvard
  • Words : 2000
  • Course Code: ECON1056
  • Course Title: Price Theory
  • University: Royal Melbourne Institute of Technology
  • Country: SG



The government of the island nation of Autarka has become concerned by recent reports that many low income families are residing in substandard housing. (Housing that is too small for the family, or that has signi cant defects.) The government has committed to implementing new policies to ensure that all families receiving welfare payments can afford housing that meets a \minimum acceptable standard”.


Two alternative schemes are under consideration:


1. Increase the weekly welfare payment made to low income families, to a level at which the families can afford to rent acceptable housing.


2. Subsidies the rents of families on welfare to bring the price of acceptable housing down to an a fordable level. The Institute for Cold-Hearted Economics has criticized both proposals for being too ex- pensive. They advocate converting $150 of the existing weekly welfare payment to a rental voucher, thereby forcing low income families to priorities housing over other consumption. They claim that using a voucher in this way, would meet the government’s goals without incurring additional expenditure. 2.1



Your task is to determine the cost (per low income family) of the two government proposals and to assess the impact of each of the three proposals (including the proposal from the Institute for Cold-Hearted Economics) on family welfare. Finally, you are to consider whether these policies may have unintended consequences for the rental market. Specif- ically, what impact might the schemes have on the equilibrium rents of acceptable and substandard homes? And, what incentive do these price changes create for the landlords of substandard housing? (Note: You do not need to model equilibria in the two rental markets. Rather, you should explain how you expect prices to change given your knowledge of demand and supply.)