2024 Edexcel IAL Economics (YEC11) 模擬試題連答案詳解

To determine the relationship between Good X and Good Y, calculate the Cross Elasticity of Demand (XED): \( \text{XED} = \frac{\% \Delta Q_Y}{\% \Delta P_X} = \frac{-5\%}{+10\%} = -0.5 \). Since XED is negative, the goods are complements. To determine the income elasticity of Good Y, calculate the Income Elasticity of Demand (YED): \( \text{YED} = \frac{\% \Delta Q_Y}{\% \Delta \text{Income}} = \frac{+4\%}{+8\%} = +0.5 \). Since YED is positive, Good Y is a normal good. Therefore, Good Y is a normal good and a complement to Good X.

1 mark for the correct answer (B). 0 marks for any other option.

Opportunity cost is defined as the value of the next best alternative forgone. To find the opportunity cost of one additional unit of agricultural goods, divide the change in manufactured goods by the change in agricultural goods: \( \text{Opportunity Cost} = \frac{\Delta \text{Manufactured Goods}}{\Delta \text{Agricultural Goods}} = \frac{80 - 50}{120 - 100} = \frac{30}{20} = 1.50 \) units of manufactured goods.

1 mark for the correct answer (B). 0 marks for any other option.

A reduction in the cost of production inputs (lithium-ion batteries) increases the supply of electric scooters, shifting the supply curve to the right. This lowers price and increases quantity. A subsidy on public transport (a substitute) makes public transport cheaper, reducing the demand for electric scooters and shifting the demand curve to the left. This lowers price and reduces quantity. Combining both shifts, the equilibrium price must fall, while the net change in equilibrium quantity is uncertain as it depends on the relative magnitude of the shifts.

1 mark for the correct answer (B). 0 marks for any other option.

Positive externalities in consumption mean that the social benefits exceed private benefits, so \( \text{MSB} > \text{MPB} \). Because consumers only consider their private benefits, the free market level of consumption occurs where \( \text{MPB} = \text{MPC} \), which is lower than the socially optimal level where \( \text{MSB} = \text{MSC} \). This results in underconsumption (allocative inefficiency).

1 mark for the correct answer (B). 0 marks for any other option.

The incidence of an indirect tax depends on the relative price elasticities of demand and supply. Consumers bear a larger share of the tax burden when demand is relatively inelastic (consumers are unresponsive to price changes) and supply is relatively elastic (producers are highly responsive). In this scenario, producers can easily pass the majority of the tax on to consumers in the form of higher prices.

1 mark for the correct answer (C). 0 marks for any other option.

First, find the equilibrium quantity by setting demand equal to supply: \( 100 - 2Q = 20 + 2Q \implies 80 = 4Q \implies Q = 20 \). Substitute \( Q = 20 \) back into the demand equation to find equilibrium price: \( P = 100 - 2(20) = 60 \). The consumer surplus is the area of the triangle below the demand curve and above the equilibrium price: \( \text{Consumer Surplus} = \frac{1}{2} \times (\text{Price Intercept} - \text{Equilibrium Price}) \times \text{Equilibrium Quantity} = \frac{1}{2} \times (100 - 60) \times 20 = \frac{1}{2} \times 40 \times 20 = 400 \) dollars.

1 mark for the correct answer (B). 0 marks for any other option.

Step 1: Calculate the percentage change in the price of organic coffee:
\(% \Delta P = \frac{£3.60 - £3.00}{£3.00} \times 100 = +20\%\)

Step 2: Calculate the percentage change in the quantity demanded of oat milk:
\(% \Delta Qd = \frac{480 - 400}{400} \times 100 = +20\%\)

Step 3: Calculate the Cross Elasticity of Demand (XED):
\(XED = \frac{\% \Delta Qd_{\text{oat milk}}}{\% \Delta P_{\text{coffee}}} = \frac{20\%}{20\%} = +1.0\)

Step 4: Determine the relationship:
Since the XED is positive (\(+1.0\)), the two goods are substitutes. An increase in the price of coffee leads to an increase in the quantity demanded of oat milk as consumers switch away from coffee to alternative options or associated alternatives.

• 1 mark for calculating the percentage change in the price of organic coffee (\(20\%\)) OR the percentage change in quantity demanded of oat milk (\(20\%\)).
• 1 mark for the correct formula for Cross Elasticity of Demand: \(XED = \frac{\% \Delta Qd_{\text{Good X}}}{\% \Delta P_{\text{Good Y}}}\) (or correct substitution of values).
• 1 mark for the correct calculation of XED = \(+1.0\) (allow \(1\)).
• 1 mark for identifying the goods as substitutes because the XED value is positive.

Step 1: Determine the equilibrium price (\(P\)) by setting \(Qd = Qs\):
\(120 - 4P = -20 + 6P\)
\(140 = 10P\)
\(P = £14\)

Step 2: Determine the equilibrium quantity (\(Q\)):
\(Q = 120 - 4(14) = 120 - 56 = 64\) units.

Step 3: Determine the maximum price consumers are willing to pay (choke price where \(Qd = 0\)):
\(0 = 120 - 4P \implies 4P = 120 \implies P_{\text{max}} = £30\)

Step 4: Calculate the Consumer Surplus (CS):
CS is the area of the triangle below the demand curve and above the equilibrium price.
\(CS = \frac{1}{2} \times (P_{\text{max}} - P) \times Q\)
\(CS = \frac{1}{2} \times (30 - 14) \times 64\)
\(CS = \frac{1}{2} \times 16 \times 64 = 8 \times 64 = £512\)

• 1 mark for setting \(Qd = Qs\) and finding the correct equilibrium price of \(£14\).
• 1 mark for calculating the correct equilibrium quantity of \(64\) units.
• 1 mark for finding the demand curve's vertical intercept (maximum price consumers are willing to pay) of \(£30\).
• 1 mark for the correct calculation of Consumer Surplus = \(£512\) (accept \(512\) if units are omitted).

Healthcare is a merit good that generates positive externalities of consumption (e.g., a healthier workforce, reduced spread of infectious diseases).

In a free market, consumers act rationally to maximize utility where Marginal Private Benefit (MPB) equals Marginal Private Cost (MPC). This yields a market equilibrium at quantity \(Q_1\) and price \(P_1\).

However, because healthcare provides external benefits to third parties, the Marginal Social Benefit (MSB) is greater than the MPB (\(MSB > MPB\)). The socially optimum level of consumption occurs where \(MSB = MSC\) at quantity \(Q^*\).

Since \(Q_1 < Q^*\), there is underconsumption of healthcare in a free market. This underconsumption results in a deadweight loss (welfare loss) to society, represented by the shaded triangle pointing towards the social optimum \(Q^*\).

• 1 mark for drawing/describing an accurate externality diagram showing a rightward-shifted MSB curve relative to the MPB curve, with a vertical or upward-sloping MSC curve.
• 1 mark for showing/describing the market equilibrium quantity \(Q_1\) (where \(MPB = MPC\)) and the socially optimum quantity \(Q^*\) (where \(MSB = MSC\)), showing \(Q^* > Q_1\).
• 1 mark for identifying the welfare loss / deadweight loss area pointing from \(Q_1\) to \(Q^*\).
• 1 mark for explaining that consumers ignore positive external benefits (third-party benefits) when making consumption choices, leading to underconsumption and market failure.

Step 1: Calculate the total tax revenue collected by the government.
\(\text{Tax Revenue} = \text{Tax per unit} \times \text{New equilibrium quantity}\)
\(\text{Tax Revenue} = £3 \times 800 = £2,400\)

Step 2: Calculate the tax burden per unit on the consumer.
\(\text{Consumer burden per unit} = \text{New Price} - \text{Old Price} = £12 - £10 = £2\)

Step 3: Calculate the total tax revenue paid by consumers.
\(\text{Total consumer burden} = £2 \times 800 = £1,600\)

Step 4: Calculate the consumer's proportion of the total tax revenue.
\(\text{Proportion} = \frac{\text{Total consumer burden}}{\text{Total tax revenue}} = \frac{£1,600}{£2,400} = \frac{2}{3} \approx 66.67\%\) (or \(0.67\))

• 1 mark for calculating the total tax revenue: \(800 \times £3 = £2,400\).
• 1 mark for calculating the consumer tax burden per unit: \(£12 - £10 = £2\).
• 1 mark for calculating the total consumer contribution: \(£2 \times 800 = £1,600\) (or identifying that the consumer pays \(£2\) out of the \(£3\) per unit tax).
• 1 mark for the correct proportion: \(\frac{2}{3}\), \(66.67\%\) or \(0.67\).

Step 1: Identify the coordinates for the initial and final combinations:
At 40 units of Consumer Goods (Combination B), Capital Goods production is 140 units.
At 90 units of Consumer Goods (Combination D), Capital Goods production is 90 units.

Step 2: Calculate the change in Capital Goods production:
\(\text{Opportunity Cost} = 140 - 90 = 50\) units of Capital Goods.

Step 3: Analyze the change in opportunity cost across combinations:
From A to B: 40 Consumer Goods cost 10 Capital Goods (average cost \(0.25\))
From B to C: 30 Consumer Goods cost 20 Capital Goods (average cost \(0.67\))
From C to D: 20 Consumer Goods cost 30 Capital Goods (average cost \(1.50\))
From D to E: 10 Consumer Goods cost 90 Capital Goods (average cost \(9.00\))
The opportunity cost of Consumer Goods increases as more are produced.

Step 4: Explain the reason:
This occurs due to the law of increasing opportunity cost. Resources (land, labor, capital) are not homogeneous; they are specialized. Transferring resources that are highly efficient in making capital goods to produce consumer goods results in progressively larger sacrifices of capital goods.

• 1 mark for calculating the correct opportunity cost: \(50\) units (must state 'Capital Goods' or 'units of Capital Goods').
• 1 mark for identifying that the opportunity cost increases as the economy moves from A to E (can be supported with calculated cost increments like \(10\), \(20\), \(30\), and \(90\) Capital Goods).
• 2 marks for explaining the economic reason: resources are not homogeneous / are specialized (1 mark), meaning they are not equally productive in producing both types of goods, so transferring them yields diminishing returns (1 mark).

Asymmetric information is an imbalance in information between buyers and sellers in a market. In many transactions, the seller has greater knowledge about the quality or cost of a product than the buyer (for example, in the market for used cars). Conversely, in insurance markets, the buyer often has better information about their own risk level than the insurance company. This mismatch of information can lead to adverse selection, moral hazard, and overall market failure where resources are not allocated efficiently.

Award 1 mark for a partial or vague definition, such as: when buyers and sellers have different levels of knowledge, or when information is not equally shared. Award 2 marks for a full definition showing a clear understanding of the concept in an economic transaction, such as: a situation where one party to an economic transaction possesses more or superior information compared to the other party.

Asymmetric information is an imbalance in information between buyers and sellers in a market. In many transactions, the seller has greater knowledge about the quality or cost of a product than the buyer (for example, in the market for used cars). Conversely, in insurance markets, the buyer often has better information about their own risk level than the insurance company. This mismatch of information can lead to adverse selection, moral hazard, and overall market failure where resources are not allocated efficiently.

Award 1 mark for a partial or vague definition, such as: when buyers and sellers have different levels of knowledge, or when information is not equally shared. Award 2 marks for a full definition showing a clear understanding of the concept in an economic transaction, such as: a situation where one party to an economic transaction possesses more or superior information compared to the other party.

A maximum price (price ceiling) is a government-imposed limit on how high a price can be charged for a product. To be effective, it must be set below the market equilibrium.

When the government of Zephyrus sets the price of flour 30% below the equilibrium:
1. The lower price increases the quantity demanded but contracts the quantity supplied, resulting in a shortage (excess demand).
2. As official bakery shelves empty, many consumers are left unsatisfied but are willing to pay more than the official ceiling price to secure this essential good.
3. This unmet demand provides an incentive for vendors to illegally hoard the flour and sell it secretly at high prices to those willing to pay, creating a black market.

**Knowledge & Understanding (2 marks):**
- 1 mark for defining a maximum price or explaining that it creates excess demand/shortage (when set below equilibrium).
- 1 mark for explaining how a shortage leads to consumers being willing to pay above the legal maximum price to obtain the good.

**Application & Analysis (2 marks):**
- 1 mark for applying to the Zephyrus context (e.g., mentioning the 30% price reduction, empty bakery shelves, or secret sales).
- 1 mark for linking the shortage of wheat flour directly to the creation of an informal/illegal black market where prices exceed the legal limit.

Diagrammatic Analysis:

1. Draw the initial market equilibrium with demand curve \(D\) and supply curve \(S_1\) intersecting at price \(P_1\) and quantity \(Q_1\).
2. Draw a parallel downward (rightward) shift of the supply curve to \(S_2\). The vertical distance between \(S_1\) and \(S_2\) represents the unit subsidy of $200.
3. Show the new equilibrium where \(D\) intersects \(S_2\), resulting in a lower price \(P_2\) and a higher quantity \(Q_2\).

Explanation of the effects:

- A subsidy is a government payment to producers that lowers their marginal costs of production.
- This cost reduction shifts the supply curve vertically downwards by the amount of the subsidy ($200), from \(S_1\) to \(S_2\).
- At the original price \(P_1\), there is now excess supply, causing downward pressure on price.
- The market settles at a new, lower equilibrium price \(P_2\) and a higher quantity \(Q_2\).
- Consumers benefit from lower prices for electric bicycles, which encourages substitution away from high-emission transport options.

Award up to 3 marks for the diagram:
- 1 mark for correctly labelled axes (Price and Quantity), demand curve, and initial equilibrium (\(P_1\), \(Q_1\)).
- 1 mark for shifting the supply curve vertically downwards/rightwards (\(S_1\) to \(S_2\)).
- 1 mark for identifying the new equilibrium (\(P_2\), \(Q_2\)) and indicating the subsidy value or area on the diagram.

Award up to 3 marks for the written explanation:
- 1 mark for explaining that the $200 subsidy reduces the cost of production for electric bicycle manufacturers, shifting supply to the right.
- 1 mark for explaining that this leads to a lower market clearing price (from \(P_1\) to \(P_2\)) and a higher quantity traded (from \(Q_1\) to \(Q_2\)).
- 1 mark for applying to the context (e.g., explaining how the subsidy makes electric bicycles more affordable, incentivising consumers to switch to greener transport).

### Diagram Description:
An appropriate demand and supply diagram must illustrate:
* A downward-sloping demand curve \(D\) and an upward-sloping supply curve \(S\) intersecting at the free-market equilibrium point, establishing equilibrium price \(P_e\) and equilibrium quantity \(Q_e\).
* A horizontal maximum price line \(P_{max}\) drawn strictly below the equilibrium price \(P_e\).
* At \(P_{max}\), the quantity supplied is \(Q_s\) (which is lower than \(Q_e\)) and the quantity demanded is \(Q_d\) (which is higher than \(Q_e\)).
* The horizontal distance between \(Q_s\) and \(Q_d\) clearly labeled as "shortage" or "excess demand".

### Analytical Points:
* **Definition & Mechanism**: A maximum price is a government-imposed limit on how high a price can be charged for a product or service. To be binding, it must be set below the market equilibrium. At \(P_{max}\), housing becomes cheaper, incentivising more tenants to seek apartments (expansion in quantity demanded to \(Q_d\)). Conversely, it reduces profitability for landlords, causing some to exit the market or cut back on supply (contraction in quantity supplied to \(Q_s\)).
* **Market Shortage**: The discrepancy between \(Q_d\) and \(Q_s\) creates a persistent shortage. In Zephyrus, this is directly evidenced by the waitlist for municipal housing doubling, showing that many individuals who want to rent at the capped price cannot find accommodation.
* **Decline in Housing Quality**: Because landlords receive lower rental revenues, their incentive and financial capacity to maintain properties falls. This explains the 40% drop in maintenance budgets in Zephyrus, leading to quality degradation of the remaining housing stock.
* **Supply Reduction**: Landlords withdrawing properties to sell them instead of renting them out further reduces the availability of rental units, worsening the housing shortage.

**Knowledge, Application, and Analysis (8 marks)**

| Level | Marks | Descriptor |
| :--- | :--- | :--- |
| **Level 1** | 1–2 | Identifies basic economic concepts. Identifies maximum price or shortage. Diagram is missing, incorrect, or lacks labels. |
| **Level 2** | 3–5 | Applies economic concepts to the context of Zephyrus (e.g., mentions the 40% decline in maintenance or doubling of waitlists). Diagram is present but may have minor labeling errors. Analysis of how the maximum price leads to a shortage is partially developed. |
| **Level 3** | 6–8 | Clear, logical economic analysis of the rent ceiling's effects. Accurate, fully labeled diagram showing \(P_{max}\) below equilibrium and the resulting shortage (\(Q_d > Q_s\)). Strong integration of Extract A evidence (maintenance budget drop, landlords withdrawing properties to sell). |

**Mark Breakdown:**
* **Knowledge (2 marks):** 1 mark for defining maximum price / rent ceiling; 1 mark for identifying that it causes a market shortage/excess demand.
* **Application (2 marks):** Up to 2 marks for applying to the context (e.g., referencing the 25% rent increase, the 40% reduction in maintenance, or the doubling of the municipal housing waitlist).
* **Analysis (4 marks):** Up to 4 marks for explaining the economic mechanisms: how the lower price creates a disincentive to supply, leading landlords to exit or neglect properties, and why a shortage arises (supported by a fully-labeled diagram showing the transition from equilibrium to \(P_{max}\)).

### Diagram Description
An appropriate demand and supply diagram must be drawn or described:
- The vertical axis is labeled 'Rent/Price' and the horizontal axis is labeled 'Quantity of Rental Housing'.
- Downward-sloping Demand curve ($D$) and upward-sloping Supply curve ($S$) intersecting at equilibrium point ($P_e, Q_e$).
- A maximum price line ($P_{max}$) is drawn horizontally *below* the equilibrium price ($P_e$).
- At $P_{max}$, the quantity supplied is $Q_s$ and the quantity demanded is $Q_d$, showing a clear shortage or excess demand ($Q_d - Q_s$).

### Analysis of Positive Impacts (Knowledge, Application, and Analysis - KAA)
- **Affordability for Low-Income Households:** For those tenants who successfully secure or remain in a rent-controlled property, their cost of living is reduced. This increases their consumer surplus and disposable income, which can be spent on other necessities, potentially reducing relative poverty.
- **Equity and Social Stability:** It prevents landlords from exploiting tenants through sudden, excessive rent hikes in areas with high demand, supporting community stability.

### Analysis of Negative Impacts (KAA)
- **Creation of a Shortage:** Since the price is artificially capped below market-clearing levels, demand increases from $Q_e$ to $Q_d$, while supply contracts from $Q_e$ to $Q_s$. This results in a persistent shortage of housing ($Q_s$ to $Q_d$).
- **Incentive for Under-maintenance:** Because landlords face capped revenues and guaranteed excess demand, they have less incentive (and fewer funds) to maintain or upgrade their properties, leading to a deterioration in the quality of the housing stock.
- **Non-Price Rationing and Shadow Markets:** Landlords may resort to unofficial rationing mechanisms, such as demanding 'key money' (illegal side payments), favoring tenants without pets/children, or requiring extensive background checks, which can disadvantage the very low-income households the policy was designed to help.
- **Reduced Long-Term Investment:** Private developers may divert investment away from building new residential rental units toward more lucrative, unregulated sectors (like commercial property or properties for sale), worsening the housing crisis over time.

### Evaluation (Evaluation points)
- **Short-run vs. Long-run Elasticity:** In the short run, the supply of rental housing is highly inelastic (landlords cannot easily sell off properties or convert them quickly), so the shortage ($Q_d - Q_s$) is relatively small. In the long run, supply becomes much more elastic as landlords exit the market and developers stop building new rental units, making the housing shortage significantly worse.
- **Magnitude of the Ceiling:** The impact depends heavily on where the $P_{max}$ is set relative to $P_e$. If it is set only slightly below equilibrium, the shortage is minimal. If it is set significantly below, the market distortion and black market activities will be extensive.
- **Opportunity Cost and Government Enforcement:** There is an opportunity cost in administering and enforcing rent control policies to prevent illegal subletting or black-market payments. The government must fund rent tribunals or inspectorates.
- **Alternative Policies:** Students may evaluate alternative interventions, arguing that policies to increase the supply of housing (e.g., easing planning regulations, subsidizing private builders, or direct state provision of social housing) or providing income subsidies (housing benefits) to low-income households might address the root cause of high prices without creating shortages.

### Indicative Content (14 Marks Total)

#### Knowledge, Application, and Analysis (8 Marks - Level 3)
- **Level 1 (1–3 marks):** Identifies basic definitions or concepts of maximum prices/rent control. Diagram may be missing, incorrect, or poorly labeled. Analysis is superficial and lacks logical progression.
- **Level 2 (4–6 marks):** Shows a good understanding of maximum prices with a mostly correct diagram. Explains at least one benefit (affordability) and one drawback (shortage) with some logical links to the housing market.
- **Level 3 (7–8 marks):** Clear, accurate, and fully labeled diagram showing $P_{max}$ below equilibrium and the resulting shortage ($Q_d - Q_s$). Strong, analytical explanation of multiple economic effects on tenants, landlords, and the wider market (e.g., quality deterioration, shadow markets, allocative inefficiency).

#### Evaluation (6 Marks - Level 2)
- **Level 1 (1–3 marks):** Offers generic evaluative comments without deep economic reasoning (e.g., 'it depends on the government' or 'it might not work').
- **Level 2 (4–6 marks):** Provides structured evaluative points. Evaluates the difference between short-run and long-run impacts (elasticity of supply), the magnitude of the price ceiling, enforcement issues, or compares rent controls with alternative supply-side policies to reach a reasoned concluding judgment.

### Introduction and Definitions
A maximum price (price ceiling) is a legally binding price set below the free-market equilibrium, above which transactions are prohibited. In housing markets, this is known as rent control. The primary macroeconomic or microeconomic objective is to protect consumers (low-income tenants) from high living costs and exploitation by landlords.

### Diagrammatic Analysis
In a standard demand and supply diagram for the rental housing market, the free-market equilibrium is established at rent \(P_e\) and quantity \(Q_e\).
- When the government sets a maximum rent at \(P_{max}\) below \(P_e\), the lower rent causes a contraction along the supply curve to \(Q_s\) (as some landlords find letting unprofitable, convert properties to alternative uses, or sell them).
- Concurrently, the lower rent leads to an expansion along the demand curve to \(Q_d\) (as more households seek independent living or move to the area).
- This divergence between quantity demanded and quantity supplied results in a permanent housing shortage (excess demand) equal to \(Q_d - Q_s\).

### Positive Economic Effects (KAA)
1. **Improved Affordability and Equity:** For those low-income tenants who manage to secure a tenancy at the regulated price \(P_{max}\), their housing costs are significantly reduced. This increases their consumer surplus, raises their real disposable income, and reduces relative poverty.
2. **Prevention of Exploitation:** In highly populated urban areas with high demand and low supply elasticity, landlords can wield significant monopoly power. Rent controls prevent landlords from charging exploitative rents and pricing lower-income earners out of key cities.
3. **Social Stability:** Stable, affordable rents reduce the displacement of families and support social cohesion within urban communities.

### Negative Economic Effects and Market Distortions (KAA)
1. **Housing Shortages and Non-Price Rationing:** Because price can no longer clear the market, a permanent shortage occurs. Landlords must use non-price rationing mechanisms, such as queuing, long waiting lists, or personal bias. This can lead to discrimination against vulnerable or lower-income groups who may lack strong employment references.
2. **Decline in Housing Quality:** Landlords facing lower rental yields and restricted profits have less incentive and fewer resources to invest in maintenance, repairs, or modernization. Consequently, the quality of the rental housing stock deteriorates over time.
3. **Emergence of Informal (Black) Markets:** Desperate tenants may agree to under-the-table payments (e.g., inflated 'key money', compulsory renting of overpriced furniture, or cash-in-hand premiums) to secure a flat, rendering the legal price ceiling ineffective.

### Evaluation and Critical Discussion
1. **Elasticity of Supply (Short Run vs. Long Run):** In the short run, the supply of housing is highly price inelastic because houses take time to build, and leases are locked in. The resulting shortage is relatively small. However, in the long run, supply becomes highly elastic. Landlords can withdraw properties from the market or refrain from building new build-to-rent properties, which significantly worsens the housing shortage over time.
2. **Government Failure and Enforcement Costs:** Monitoring and regulating the rental market to prevent illegal subletting, informal payments, and landlords neglecting maintenance requires significant government spending and administration. If these enforcement costs are too high, the policy results in net government failure.
3. **Alternative Policies:**
- **Supply-Side Policies:** Instead of capping prices, the government could increase the supply of housing by easing planning permissions or building social housing, which shifts the supply curve to the right and naturally lowers equilibrium rent without creating shortages.
- **Income Subsidies:** Providing housing benefits directly to low-income tenants targets those in need without distorting the price mechanism, though it may inflate market rents in the absence of supply growth.

### Conclusion
While a maximum price on rental housing offers immediate, visible benefits in terms of affordability for existing tenants, it generates severe long-run unintended consequences. The contraction in housing supply and deterioration of property quality suggest that rent control alone is an inefficient long-term solution. To achieve sustainable affordability, the government should combine short-term rent stabilization with long-term commitments to increase housing supply.

### KAA (Knowledge, Application, Analysis) — [12 Marks]
- **Level 4 (10-12 marks):** Strong, precise economic analysis of both positive and negative effects of a maximum price in the rental market. Accurate, well-labelled diagram showing equilibrium, the maximum price below equilibrium, and the resulting shortage (excess demand). Fully applied to the context of rental housing (e.g., landlords, tenants, housing quality).
- **Level 3 (7-9 marks):** Good economic analysis of the effects, with a mostly correct diagram. Clear chain of reasoning explaining why shortages, non-price rationing, or quality changes occur.
- **Level 2 (4-6 marks):** Basic understanding of a maximum price. Diagram may have minor errors. Arguments are present but lack deep economic development or direct application to the rental market.
- **Level 1 (1-3 marks):** Identifies basic terms (e.g., maximum price, supply, demand). Lacks coherent analysis or an accurate diagram.

### Evaluation — [8 Marks]
- **Level 3 (6-8 marks):** Clear, balanced, and deep evaluative points. Explores critical nuances such as the short-run vs. long-run elasticity of housing supply, the risk of government failure, or a comparison with superior alternative policies (e.g., social housing, subsidies). Ends with a reasoned, justified concluding judgement.
- **Level 2 (3-5 marks):** Evaluative points are offered and partially developed (e.g., mentions that landlords might leave the market or that supply is inelastic in the short run), but lacks a strong, balanced final judgement.
- **Level 1 (1-2 marks):** Generic evaluative statements without development or economic justification.