Question

Your local government is concerned about the lack of affordable apartments in the area. To combat the problem it proposes to set the legal maximum rent on 1 bedroom apartments at​ $300 per month. You are asked to confirm whether or not this policy will solve the problem. You estimate that the inverse market demand​ is: p equals 1200 minus 2 Upper Q and the inverse market supply​ is: p equals Upper Q. You argue that this policy will cause an ▼ excess supply excess demand of nothing units per month ​(enter your answer as a whole number​). ​Further, you calculate that some consumers would be willing to pay as much as ​$ nothing a month for an apartment ​(round your answer to the nearest​ penny). You conclude that there will be a deadweight loss of ​$ nothing per month ​(round your answer to the nearest penny and enter the deadweight loss as a positive​ number). You add that your calculation of the welfare loss ▼ overestimates underestimates the actual loss.

Answer 1

Answer: excess demand, underestimate

Explanation:

P= 1200 - 2Q

300= 1200 - 2Q

2Q = 1200 -300

2Q = 900

Q = 900/2

Q = 450

Quantity demanded is 450 units

Quantity supplied Q - P = 300

Excess demand = 450 - 300 = 150

The policy will lead to excess demand of 150 per month.

P= 1200 - 2Q

P= 1200 - 2(300)

= 1200 - 600

= 600

Willing to pay price is $600.

Deadweight loss = 0.5 × (Price buyers are willing to pay - ceiling price) × (market quantity supplied - ceiling quantity supplied)

= 0.5(600-300)(400-300)

= 0.5(300)(100)

= 15000

Deadweight loss is $15000

The welfare loss underestimate the actual loss