Question

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

Answer 1

Answer:

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