How policy affects equilibrium price and quantity of small

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a) To reduce the construction of big luxury apartments, the Chinese government requests that at least 70% of the new apartments must not exceed 90 square metres. Use a diagram to show and explain how this policy affects the equilibrium price and quantity of small- and medium-sized apartments (i.e. apartments of no more than 90 square metres) in China.

b) Suppose the Chinese government imposes a binding (i.e. effective) price ceiling on small- and medium-sized apartments. Explain with a diagram what will happen to the consumer surplus, the producer surplus and the total surplus.

Reference no: EM131090880

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