Question

Suppose that in 2002 the market for rented apartments in Manhattan has the following supply and demand curves: Q 4000-P 1000+4P where P is the monthly rent. What is the equilibrium price (rent) for an apartment? How many apartments are built and rented out? Now suppose the government imposes rent control, ruling that rents may not rise above $500. What is the excess demand (shortage) of apartments? What is the total deadweight loss (in dollars)? In 2003 the population of Manhattan rises by 100, which increases the quantity demanded at any price by 100. What is the new demand curve? In the absence of rent control, what would the equilibrium price and quantity be? What would be the increase from 2002 to 2003 in the quantity of housing supplied? Suppose the rent control of the previous year is still in place. What is the increase in the quantity of housing supplied? What is the excess demand (shortage) of apartments? What is the deadweight loss? Based on your answers to 2 and 6, how might rent controls help explain why it is getting harder and harder to find an apartment in Manhattan? Suppose no rent control existed, and the equilibrium rent (price) prevailed. What would be the percentage growth in rental rates from 2002 to 2003? Suppose rents continued to grow at this rate. How many years would it take for rents to double? 1. 2. 3. 4. 5. 6. 7. 8. 9.

Answer 1

Intersection of demand and supply curve determines equilibrium price and quantity.

Rent control is set below equilibrium price which means demand of apartments will be greater than the supply of apartments. It leads to shortage of apartments.