Economic Principles

Question 1 – Article Analysis
i. Read the following articles and write a summary of each article that highlights the main
economic issue(s) being discussed.
“RBA governor Philip Lowe only sees one way to solve Australia’s housing affordability
problem” at https://www.businessinsider.com.au/lowe-housing-affordability-2017-4
“Sydney squeeze: Is rent control the answer to the housing affordability crisis?” at
http://www.abc.net.au/news/2017-03-21/sydney-squeeze-affordable-housing-rent-controloptions/8370364
(4 marks)
ii. Discuss three (3) of the factors that have contributed to the unaffordability of housing in
Australia and three (3) approaches that policy makers have put forth to address the issue of
housing affordability.
(3 marks)
iii. Using a demand and supply diagram for the housing or rental market in Australia, illustrate the
effect of one of the factors that have contributed to the rise in housing or rental prices in
Australia. Briefly explain your diagram and state which side of the market is being affected and
why and the effects to equilibrium price and quantity.
(Label your diagram fully and use realistic axes labels. Give your diagram a title. Note – you do
not need to use actual data for this question).
(3 marks)
3
Question 2 – Rental Market Analysis
i. Using a demand and supply diagram for the market for rental properties, illustrate and explain
the effect of a (binding) rent ceiling. (Label your diagram fully and use realistic axes labels. Give
your diagram a title).
Your analysis should discuss the welfare effects on this market and the changes to quantity
demand and supplied.
(6 marks)
ii. List and briefly discuss 2 alternative mechanisms that may help to ration the rental stock when
the free-market price is prevented from achieving a market-clearing equilibrium.
(2 marks)
iii. Discuss how the quality of the rental stock may be affected by the implementation of a rent
ceiling?
(2 marks)
(10 + 10 marks) Total 20 marks