5. (25 points total) The market for housing in October City is perfectly competitive with relatively inelastic supply and demand schedules, supply is more inelastic than demand A. (3 points) Use a properly labeled graph to show equilibrium price and quantity in this market. B. (3 points) Suppose the city government decides that the housing price is too high, so it imposes a price ceiling that is below the current equilibrium price. On the same graph show the effect of this price ceiling on the price and quantity of housing. C. (4 points) How does this policy affect welfare? On your graph from part A, show the consumer and producer surpluses after the policy is implemented. Are the consumers and/or producers better off with the policy? Is the policy inefficient, i.e., is there any deadweight loss? Explain. 3 D. (4 points) As time passes, the supply of housing decreases and becomes more elastic, while the demand remains the same. On a separate graph draw these supply and demand schedules, the equilibrium price and quantity, and the effects of the price ceiling on market outcomes: price, quantity, consumer and producer surpluses, total welfare. Compare your answers to those from the previous parts of the question. Return to part A of the question. Suppose that instead of a price ceiling, the government decides to subsidize consumers. That is, the government implements a per unit subsidy in the amount of s paid to the buyers of housing. E. (3 points) Draw another graph with the original market equilibrium in the housing market. On this new graph show the effects of the subsidy on: 1. Quantity of housing ii Price paid by the buyers iii. Price received by the sellers F. (4 points) On your graph from part E, show the changes in consumer and producer surpluses from the subsidy policy. Who benefits more, buyers or sellers? Why? How much does the government spend on this policy? Is it efficient, i.e., is there any deadweight loss? G. (4 points) Over time, the supply will increase and become more elastic, while the demand will stay the same. What is likely to happen to consumer surplus? You may illustrate your answers with a graph if you wish