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 the table below.

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 charged 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?

Monthly Rent Apartments Demanded Apartments Supplied $2500 10,000 15,000 2000 12,500 12,500 1500 15,000 10,000 1000 17,500 7500 500 20,000 5000

Explanation / Answer

a. the market equilibrium rental price per month is $2000

and the market equilibrium number of apartments demanded is 12,500

the market equilibrium number of apartments supplied is 12,500 .

As at equilibrium , Quantity demanded =Quantity Supplied

b. If the local government can enforce a rent-control law that sets the maximum monthly rent at $1500,Then there will be a shortage.

The shortage = quantity Demanded - quantity supplied

= 15,000 - 10,000

Shortage = 5,000 units

And units that will actually be rented each month = quanity Supplied = 10,000

c.Suppose that a new government is elected that wants to keep out the poor. It declares that the minimum rent that can be charged is $2500 per month. If the government can enforce that price floor,there be a surplus as quantity supplied is more then quantity demanded

Surplus = Quantity supplied - Quantity Demanded

= 15,000 - 10,000

Surplus = 5,000 Units

Units that will actually be rented each month = Quantity demanded = 10,000

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