Question

U L iebe! 1 Exercise 2: The "welfare" implications of governmental in- tervention Suppose that market supply and supply for a standard one-bedroom apartment in Berkeley North are Jd = 1000-50P 19 -30--200, where ou (0.) corresponds to quantity demanded (supplied) and p corresponds to the monthly rent per apartment (measured in hundreds of US$). 1. Please calculate the equilibrium price that will clear this market and the accompanying equilibrium quantity. 2. What is the Consumer Surplus (CS) at the equilibrium? What about the producer surplus (PS)? 3. In response to increasing pressure from the UC Berkeley administration, the city council decides to impose a rent ceiling at $800 per apartment. Is the policy binding? What is quantity supplied at that price? What about quantity demanded? 4. What would be the new Consumer Surplus (CS)? The new Producer Surplus (PS')? What is the size of the efficiency loss? 5. Let's assume that the city of Berkeley mandates the apartment owners to rent their units until quantity supplied matches quantity demanded at the price ceiling. What would be the resulting Consumer Surplus (CS")? What about the resulting Producer Surplus (PS")? 6. Following protests from the landlord of Berkeley association, the city of Berkeley has agreed to pay for the difference between the price ceiling and the marginal cost of the last unit supplied under the previous quantity requirement. How much money would the city have to spend under this procurement? What would be the new Producer Surplus (PS")? Frenciso 3. Monopoly

please also help questions 5 and 6. thank you!

Answer 1

90 = 1000 - 50p Is = 30p - 200 At p=8. 90 = 1000 – 50 X 8 = 600 qs = 30 X 8 - 200 = 40 If q=qD=600; CS" = 1/2 X (20 - 8) X 600 = 3600 The consumer surplus is $360000. Marginal cost of last unit produces or q=600 is 80 MC = p =9s + 200 303 The producers receive 8 units for each unit. Then total revenue received by the producers is 4800 units or $480000. The total cost of producing 600 units is the area under the supply curve. Then cost is Cost = 120x600 +3* (*_*)*600 = 10000 Then total cost is $1000000. Therefore, the producer's surplus is PS" = $480000 – $1000000 = -$520000 Marginal cost of last unit produced is The government pay the difference between MC and 8. Then per unit pay for government: 8056 3-8= 3 Then the government pay 5 per unit for 600 units. Then the total payment of government is G = $5600 = -X 600 = $1120000 Then the producers' surplus rises to PS" = -$520000+ $1120000 = $600000