Question

FIGURE 6.1 Problems 1 and 2 4. a. What are the equilibrium rent and equilibrium quantity of rental housing? The equilibrium quantity is 20000 houses for a 450$/month rent. b. If a rent ceiling is set at $600 a month, what is the rent paid? What is the shortage of housing? Rent (dollars per month) 150 5. If the rent ceiling is $300 a month, what is the quantity rented, the shortage of housing, and the maximum price that someone is willing to pay for the last unit of housing available! 0 10 20 30 Quantity (thousands)

Answer 1

a) The equilibrium is at a point were the demand and supply curve meets, that is at price of 450 and quantity of 20.

b) If the rent ceiling is at a price of $600 there will be no shortage and market will remain at the equilibrium because ceiling above the equilibrium price is ineffective.

c) At the rent ceiling at the price of $300 per month the demand will be 30 and the supply will be at 10, there will be a shortage of 20 in the market and maximum price that a renter is willing to pay will be 600.