Econ Exam Examples

Question 1

Maximum price (price ceiling)

Answer 1

For instance, since 2015, the German government has implemented a rent control law called “Mietpreisbremse” in several cities, including Berlin, to provide affordable accommodation for residents. This scenario can be illustrated by the diagram below.

Nevertheless, it is vital to consider that in the case of subsidies and direct provision, the government incurs an opportunity cost of supporting other industries, such as healthcare and education. This can impact consumers through greater competition for school admission as schools receive less funding to expand their facilities and employ more teachers and longer waiting lists for a doctor’s appointment or a need for people to purchase some medicine by themselves as the government is unable to provide it due to a lack of finances.
Additionally, even though the German rent control law applies to furnished apartments, landlords might overcharge tenants for this service since it’s nearly impossible for residents to accurately determine the cost of this service, making housing less affordable.