1. No Deadweight Loss from Rent Control? Like other fruit flies, Frudo has an expected life span of 37 days. According to Frudo, if my assumptions are correct, a rent-control law implemented today will simply redistribute income from property owners to consumers. There will be no deadweight loss, at least not in my lifetime.

a. What is Frudo s key assumption?

b. Draw a complete graph to show his assumption and logic.

c. The typical elephant has an expected life span of 60 years. How would its analysis of rent control differ from Frudos? Illustrate with a complete graph.

2. Price Controls for Medical Care. Consider a town where the equilibrium price of a doctor s visit is $60 and the equilibrium quantity supplied is 90 patient visits per hour. For suppliers (doctors), each $1 increase in price increases the quantity supplied by two visits. For consumers, each $1 increase in price decreases the quantity demanded by one visit. Suppose that in an attempt to control the rising costs of medical care the government imposes price controls, setting a maximum price of $50 per visit.

a. Use a completely labeled graph to show the effects of the maximum price on (a) the quantity of visits to doctors and (b) the total surplus of the market.

b. What sort of inefficiencies does the price control cause?

c. Would you expect patients and doctors to find ways around the maximum price?

3. Gasoline Price Controls. The equilibrium price of gasoline is $3, and the equilibrium quantity is 100 million gallons per day. Suppose the government sets a maximum price of $2.90. For producers, each $0.01 increase in price increases the quantity supplied by 3 million gallons.

a. Draw a graph to show the effects of the maximum price on the gasoline market. Label the initial equilibrium point as a. and the point that shows the quantity supplied under the maximum price as b.

b. How does the maximum price affect the quantity of gasoline sold?

4. Maximum Rent on Land. Consider a state where all land is occupied by mobile-home parks, and each household rents one padacre (a standard pad for a mobile home). In the market equilibrium, the rent is $200 per padacre. Suppose the government sets a maximum rent of $150 per padacre, regardless of how the land is used. Recall the old saying the trouble with land is that they are not making it anymore.

a. Use a supply-demand graph to depict the market with the maximum rent.

b. Does the rent maximum affect the equilibrium quantity of land?

c. Does the rent maximum generate a deadweight loss? If not, why not?

5. Supply Elasticity and Deadweight Loss. Consider the following statement: As the price elasticity of supply increases, the deadweight loss from a maximum price changes.

a. Draw two sets of supply-demand curves, one with a more elastic supply curve.

b. In the case of more elastic supply, is the deadweight loss larger or smaller?