Help with some multis

[andrew4443]

Wondering if anyone could help with a few questions:

Neap 2004 Exam
To assist low income families the Government has subsided rents to ensure a maximum price is maintained for public housing. Which of the following statements would most likely explain the situation in the public housing market if the Government removed the maximum price control?
A- Rent prices will fall as supply is greater than demand
B- Rent prices will rise as supply is greater than demand
C- Unmet demand will force prices up
D- New suppliers will be discouraged from entering the housing rental market

You can immediately eliminate B as the laws of supply + demand dicate that prices will not rise if supply is greater than demand.
My thinking is that if they removed subsidies the producers would rise prices to preserve profit margins, meaning that A is incorrect.
Further, new supplies would likely be encouraged to enter the market, as they can attain a higher price for rent meaning that D is incorrect.

I put C (which was the correct answer) but I don't really understand why its correct.

There was another mutiple choice (I cant find the question) but it was along the lines of what would be the effect on the terms of trade if the USA entered a recession.
One of them was an improvement in terms of trade, the other was worsening terms of trade.
I put down worsening terms of trade, as if the US entered recession, there would likely be a reduction in demand for Australian exports, reducing the price and worsening terms of trade.

The answer was an improvement in terms of trade, as they said that the price of American imports would fall due to the recession which improves terms of trade. Firstly they have assumed that there will be deflation due to a recession- which is incorrect- and they haven't mentioned that there would be a decrease in demand for our exports.

Can anyone shed some light on this?

[ReVeL]

For the first one:

Picture your Demand-Supply graph. This imposed maximum price will be somewhere below the equilibrium, and is illustrated by a horizontal line. At this point, Quantity Demanded > Quantity Supplied [just by reading off the graph], and the quantity traded will be equal to Quantity Supplied [because that is the lesser of demand and supply]. This means there is demand that's currently not being met.

If the maximum price is removed, then market forces will come into play. At the current price, we have many willing buyers but few willing sellers. Thus, sellers will raise their prices until the equilibrium is met, i.e. when Quantity Demanded = Quantity Supplied.

C is the only possible answer.

[xXNovaxX]

Would you by any chance be able to upload the NEAP 2004 exam 

[andrew4443]

^^^ Don't have a scanner, but ill see what I can do

[xXNovaxX]

ty!