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    In Risainia (a hypothetical country), the prices of commodities such as food and clothing are set in a free market, but housing is heavily subsidized by local governments. A two-bedroom apartment, for example, might rent for $10.50 per month. (Utilities and other fees increase the cost to about $350.) Consider the following statement made by an economic advisor: "Because of subsidized rents, some tenants live in larger apartments than they need and might not otherwise afford." Explain how this situation relates to the concept of excess burden, and illustrate with a diagram.

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    Solution Summary

    The concept of excess burden is illustrated with a diagram.