During 2022, the government of a coastal city limited the daily rent charged for emergency fishing boats after inflation increased fuel costs. Fig. 1 gives ...

(a) Shortage at the legal maximum rent: 50 boats per day. [2]

At $40 per day, the graph shows quantity demanded of 80 boats and quantity supplied of 30 boats. Therefore:

\[\text{shortage}=80-30=50\text{ boats per day}\]

(b) The maximum price changes allocation because demand exceeds supply. [3]

• At the controlled rent, there is excess demand or a shortage, so some fishers cannot hire a boat. [1]
• Boat owners may allocate the limited boats through queues, personal preference or informal payments rather than through the market price. [1]
• Lower rental income may reduce owners' willingness or ability to maintain and provide boats. Alternatively, successful low-income fishers who obtain boats may be able to increase output because hire is cheaper. [1]

(c) The government should keep the policy only with measures that address its shortage. [3]

The benefit is that lower rent makes boat hire more affordable and may help low-income fishers stay in work or increase fishing output. However, some fishers cannot obtain boats, while reduced owner income may weaken maintenance and future supply. The policy is more defensible if the government increases supply or provides targeted support, such as a subsidy. Otherwise, raising or removing the maximum rate is likely to improve allocation and support activity more sustainably.