Question

1.) Efficiency The table below shows the supply and demand balance for the rental housing market in Riyadh. Supply and Demand for Houses in Riyadh Price (SAR per m2) Quantity Quantity demanded supplied ('000 houses) 1000 900 100 800 200 600 300 400 500 400 200 600 a.) Draw the supply and demand balance of the housing market in Riyadh. What is the equilibrium price and equilibrium quantity in the market? (1.5 Point) b.) In your graph, shade in and label the consumer surplus and the producer surplus at the competitive equilibrium. (1 Point) Now assume the government introduces a law that states landlords cannot charge a rent above 50 SAR per m2 c.) Given the price of 50 SAR per m2, is there a shortage or a surplus in the market and how big is the shortage or surplus if it exists? (1 Point) d.) Shade in and label the consumer surplus and the producer surplus in the market with the price floor of 50 SAR per m2. (1 Point) e.) Compare the consumer surplus and producer surplus before and after the price floor and highlight if there is any loss. (0.5 Points)

Answer 1

1 Efficiency: and demand demand for for Houses i and Houses in Riyadh a . supply price Quantity demanded Quantity supplied (1000 homn) (SAR pr m2) 30 40 100 200 50 1000 900 800 600 400 200 . 300 60 400 70 500 80 90 600 90 . o and demand caves of a) Now we can graph the supply the housing market in Riyadh CS Scanned with CamScanner

pprice (SAR Pum?) BOT to Denard 201 o no 200 300 400 500 600 700 80 900 1000 Quantity the the de by below the the demand and supply care intrisits each other ('0oohoon) I at a pure of 70 SAR pam2 and at a quantity of i 400 looo) homes. Hence, the equilibrium Price is CAR pn m² and 70 SAR pu m2 a equilibrium quantity in the market is 400 ('000) houses. w the the consmes simples at the competitive equilibum ea below the demand cmue and above the esnilibuun pice le area of A ABE and produan suplus is the area above the supply Conve and below the equilibrium pace ie area of DBD . . Now ass ming the govnnment into ducis a law stating that landlords cannot change a rent above 50 SAR Pn m? This ti is as it the area m2 This is the legal maniman capocanned with CamScanner

- Price that land lords can change m2 hence this is a binding Price at land lords can change. As 50 SAR/m2 - es below the equilibrium pull of to SAR P cewe Now cium the price of 50 SAR pumz . . Quantity demanded at that ре й яъ ('om price is - homa) and Quality supplied at Puce levce of 50 SAR pn m2 i r 200 / 1000 homes). Hunce as quantity demanded is greate then quantity supplied at price 50 SAR pu m2, tice there į an eneess demand or shortage in the market giver by (800-200) = 600 (1000hown). d Now aftn the price follof floor of 50 SAR puma consmu suplus Now : - Area of 12 ATNI Area of a TNSP Now Producu sunplus is: APSD : = Area of e face after the price floor cons mas simples щая Ном меа - ДАВz ю беа - A A.TNI Area of Insp. Whereas after the price tei floor, Producer Sur plus de clines from area of n Bed to area of A PSD. so there is a loss in Pro duen simples. Ics Scanned with CamScanner