Question

Question 3 The graph below represents the market for rental housing in a small town. 600 450 300 150 0 10 20 30 40 Quantily thousonds (a) What are the equilibrium rent and quantity of housing rented? (2pts) Now consider a rent ceiling set at $600/month: (b) What would be the rent paid? Explain. (4pts) (c) Calculate the shortage of rental housing units. (4pts) Now consider a rent ceiling set at $300/month: (d) How many housing units would be rented? (6pts) (e) Calculate the housing shortage? (6pts) (0) What would be the maximum price that someone would be willing to pay for the last unit of housing available? (6pts

Answer 1

Equilibrium rent = $ 450/month equilibrium quantity of housing rented = 10 (equilibrium takes place, where supply is equal to reduced) rent eiling set at $ 600/month since $ 600 > $ 450 this rent ceiling won't be binding and by virtue of the market force of demand and supply, equilibrium rent paid would be $ 450/(if is at $ 450 rent ceiling cretireia is not fulfilled) There won't be any shortage of rented housing units, because at $ 450 /quantity of household demanded is equal t quantity of household supplied i.e, 20 units d) Now, a rent ceiling of $ 300/ is imposed At $ 300/ month 10 units of housing would be rented (since $ 300 < $ 450 this rent ceiling is binding and hence, price ca not adjust to equilibriate supply and demand for housing) At $ 300 /month quantity of house demanded: