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A)Suppose the following graph shows the demand for, and supply of, apartments in New York City. Use the black point (plus symbol) to indicate the equilibrium monthly rent and quantity of apartments in the absence of price controls. Then use the green point (triangle symbol) to fill the area representing consumers surplus, and use the purple point (diamond symbol) to fill the area representing producers surplus Demand Equilibrium 2400 CS 2200 PS Z 2000 1800 Supply 1600 1.6 2.4 3.2 4.0 5 0.8 QUANTITY OF APARTMENTS (Millions per month)

B)Suppose that the government decides to impose a rent control of $1,900 per month on rental apartments in New York City, On the following graph, use the green point (triangle symbol) to shade the area representing consumers surplus in the presence of rent control. Use the purple point (diamond symbol) to shade the area representing producers surplus after the rent control. Then use the grey point (star symbol) to shade the area representing deadweight loss resulting from the rent control 2 2 Demand CS w/ Rent Control 2400 PS wI Rent Control Z 2000 Deadweight Loss Rent Ceiling O 1800 SupplyI 1600 0.8 2.4 3.2 9 4.0 QUANTITY OF APARTMENTS (Millions per month)

C)  In the presence of the rent control, consumers’ surplus increased/decreased by 400/320/240/80 million per month and producers’ surplus increased/decreased by 320/300/280/240 million  per month. The price ceiling on rent causes 960/480/320/160 million  per month of deadweight loss.

D)

Which of the following are generally true of rent control? Check all that apply. O Non-price methods of rationing emerge. O All consumers gain from rent control. O The quantity of available rental apartments increases. O The quality of rental apartments improves. People most in need of an apartment may not be able to rent one

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Answer #1

Before the imposition of rent ceiling, equilibrium rent was 2100 and equilibrium number of apartments were 1.6 millions. CS is the area above the price line of $2100 and below the demand curve. PS is the area below the price line and above the supply curve

Rent ceiling reduces the PS and increases the CS. There is a deadweight loss shown by a triangle drawn between new number of apartments and original number

CS increases by 80 million as shown by change in CS = old - new = 0.5*(2500 - 2100)*1.6 - 0.5*(2500 - 1900 + 2300 - 1900)*0.8 = 320 - 400 = 80

PS decreases by 240 million as shown by change in PS = 0.5*(2100 - 1700)*1.6 - 0.5*(1900 - 1700)*0.8 = 240

Deadweight loss is 160 million = change in CS + change in PS = + 80 - 240 = -160

Non price methods of rationing emerge, people in need may not be able to get one (1st and last)

Demand Demand 2400 2400 CS Equilibrium Deadweight Loss PS Z 2000 Z 2000 ng 1800 O 1800PS w Rent Control Supply Supply I 1600 1600 0.8 1.6 2.4 3.2 4.0 5 08 2.4 3.2 9 4.0 QUANTITY OF APARTMENTS (Millions per month) QUANTITY OF APARTMENTS (Millions per month)

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