Assume that the market equilibrium rent for two-bedroom apartments in Santa Moni

Question

Assume that the market equilibrium rent for two-bedroom apartments in Santa Monica, California is $1500 per month and the quantity is 40,000 units. The city council of Santa Monica establishes a rent control of $1200 per month on two-bedroom apartments.
(a) Assume that the elasticity of supply of two-bedroom apartments in Santa Monica is 1.5. What will be the new quantity supplied after the rent control?
(b) Assume that the elasticity of demand for two-bedroom apartments is 1. What is the quantity demanded at the rent controlled price and what is the shortage?
(c) Find the change in consumer surplus at the rent controlled price and new quantity supplied compared to the market equilibrium.
(d) With the new quantity supplied, what is the marginal willingness to pay for these apartments? Suppose consumers "pay" this amount (above the rent) in time spent searching for apartments. Now what is the change in consumer surplus after the rent control?

Explanation / Answer

market equilibrium rent for two-bedroom apartments in Santa Monica, California is $1500 per month and the quantity is 40,000 units. >The city council of Santa Monica establishes a rent control of $1200 per month on two-bedroom apartments. a)elasticity of supply of two-bedroom apartments in Santa Monica is 1.5. elasticity =dq/dp(p/q)=> 1.5=dq/$300($1500/40000) from here we get change in quantity supplied dq
change =dq+q b)Assume that the elasticity of demand for two-bedroom apartments is 1. elasticity =dq/dp(p/q)=> 1=dq/$300($1500/40000) from here calculate dq then find the chnge by q+dq c)at equilibrium quantity demande= quantity supplied we will find the quantity supplied from above calculation and consumer surplus is the xtra demand created due to fall in price

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