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2 March, 20:02

Suppose that the demand and supply schedules for rental apartments in the city of Gotham are as given

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

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?

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  1. 2 March, 21:19
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    a) Equliibrium Price: 2,000,

    b) Shortage, 5,000 units, 10,000 units actually rented

    c) Surplus, 5,000 units, 10,000 units actually rented

    Explanation:

    The demand and supply schedules for rental apartments in the city of Gotham are given as:

    Monthly Rent Apartments Demanded Apartments 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) At equilibrium price, number of apartment demanded equals number of apartment supplied. From the table, the equilibrium price is $2,000.

    b) If the local government can enforce a rent-control law that sets the maximum monthly rent at $1500, then number of apartments supplied is 10,000. and the number of apartments demanded is 15,000.

    This means there is going to be a shortage of 15,00-10,000=5,000.

    The number of units that is actually rented is 10,000

    c) if a new government declares that the minimum rent that can be charged is $2500 per month, then, the apartments supplied at this price is15,000 units and the apartment demanded at this price is 10,000 units. Since supply outweighs demand, there is going to be a surplus of 15,000-10,000=5,000 units.

    The number of units that is actually rented each month refers to the effective demand, which is 10,000
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