Suppose that the demand and supply schedules for rental apartments in the city o

Question

Suppose that the demand and supply schedules for rental apartments in the city of Gotham are as given in that table below:
Monthly Rent Apt Demanded Apt Supplied
$2500 10,000 15,000
2000 12,500 12,500
1500 15,000 10,000
1000 17,500 7,500
500 20,000 5,000

a. What is the market equilibrium rental price per month and the market equilibrium number of apartments demanded and supplied?

b. If the local government can enforce a rent-control law that sets the maximum monthly rent at $1500, will there be a surplus or a shortage? Of how many units? And how many units will actually be rented each month?

c. Suppose that a new government is elected that wants to keep out the poor. It declares that the minimum rent that can be changed is $2500 per month. If the government can enforce that price floor, will there be a surplus or a shortage? Of how many units? And how many units will actually be rented each month?

d. Start at the original (correct) equilibrium price and quantity in part (a). Suppose that the government wishes to decrease the market equilibrium monthly rent by increasing the supply of housing. Assuming that demand remains unchanged, by how many units of housing would the government have to increase the supply of housing in order to get the market equilibrium rental price to fall to $1500 per month? To $1000 per month? To $500 per month?

Explanation / Answer

The equilibrium price is when supply and demand are the same, so that is at $2000 per month with a quantity of 12,500. There will be a shortage if the rent-control is put in place, it will be a shortage of 5000 units, and 10,000 units will be rented out. There will be a surplus if the price floor is put in place, it will be a surplus of 5000 units, and 10,000 units will be rented out. To get rent to $1500, they would have to add (15,000-10,000) units, so 5000 units, To get rent to $1000, they would have to add (17,500 7,500) units, so 10,000 units, To get rent to $500, they would have to add (20,000 5,000) units, so 15,000 units,

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