Role of Government in Microeconomics · Paper 2 — Free Economics SL Practice Questions

A government introduced a specific tax of $\text{VND}\,5{,}000$ per litre on sugary drinks. Prior to the tax, the market equilibrium price was $\text{VND}\,20{,}000$ per litre and equilibrium quantity was $10$ million litres per month. After the tax, consumers paid $\text{VND}\,24{,}000$ per litre, quantity traded fell to $7$ million litres per month, and the government collected $\text{VND}\,35$ billion per month in tax revenue.

The government of India increased the minimum support price (MSP) for wheat from INR 1,800 per quintal (the market equilibrium price) to INR 2,015 per quintal. At INR 2,015, the quantity supplied by farmers is 120 million quintals and the quantity demanded by consumers is 80 million quintals. The government purchases all unsold surplus at the MSP.

The government of Country X, a high-income economy, introduced a binding maximum price (price ceiling) on rental housing in its capital city in 2023. The policy aimed to improve housing affordability for low-income households. The market for rental housing before the policy had an equilibrium monthly rent of USD 1800 and 100,000 units rented. The government set the maximum price at USD 1200 per month. At this price, quantity demanded is 140,000 units and quantity supplied is 70,000 units. The price elasticity of demand (PED) for rental housing is estimated at $0.4$ in the short run and $0.8$ in the long run. The price elasticity of supply (PES) is estimated at $0.6$ in the short run and $1.2$ in the long run.