Question

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2. Analyzing occupancy rates Bill, an economics student, says, "This articie makes no economic sense. It quotes someone as saying that the price of apartments will go up if jobs pick up in Santa Clara. But 5% of the apartments are sitting empty. Prices should go down when there is a surplus like this one." Sara, the graduate teaching assistant for Bil's section, tries to explain to him why he might be wrong. (You have to answer her questions for him.) Sara starts by asking Bill to picture a city with 100,000 apartments, so an occupancy rate of 95% means that 95,000 apartments are occupied and 5,000 are empty. "Now suppose," she goes on, "that 1% of all the apartment dwellers move out each day. How many apartments will become vacant each day?" O 860 O 950 0 740 O 500 O 1,200 Imagine," Sara continues, "that a few empty apartments have new people move in on the very same day that the old occupants move out. Others take longer. After all, even if lots of people are looking for apartments, it takes a few days for new tenants to come see one that has just come on the market because most people don't search every day. "Let's assume that 19% of all the open apartments get new occupants each day. This means that on average, an apartment is empty for a bit more than 5 days. "So if there are 5,000 empty apartments, then how many apartments get new occupants each day?" 860 950 O 740 500 O 1,200 So you see that if 1% of occupied apartments lose their tenants each day, and 19% of the empty apartments are filled each day, then everything balances out if there are 5,000 empty apartments at all times. The number of apartments that become vacant( 1% times 95,000) is equal to the number that get filled (1996 times 5,000). So with these rates, 5,000 apartments will always be vacant. The occupancy rate will stay at 95% and the vacancy rate will stay at 5%. Next, things change. Suppose that a rich genie offers to pay everyone who rents an apartment In this city $500 per month. Surely this would lead to an increase in demand for apartments and eventually to an increase in the price of the apartments. I know this sounds silly," Sara says, "but bear with me. Sometimes when you want to get a sense for what is going on in realistic settings, it helps to start with a thought experiment that analyzes the effects of a more extreme case. "Because no new apartments can be built In this city, supply and demand analysis tells you that when the genie offers a $500 payment to each renter, rents should go up by " per month. 1,500 $1,000 Now, to continue this thought experiment, imagine that at f $500 controls imposed by the local government. Lots of people whe w780tly rent in this city will suddenly start looking there because of the $500 payment that they can receive if they become a renter apartments can't adjust because of rent In the ensuing frenzy, apartments are snapped up even faster than before. Now suppose that on average, 49% of all vacant apartments get new occupants each day. You'll see in a minute," Sara says as an aside, "why I picked this odd number, 49%. It makes the other numbers come out nicely. "At this rate, the average apartment is vacant for about 2 days. In these conditions, what will the vacancy rate be in this market? To calculate this, continue to assume that 1% of all occupied apartments become vacant every day. I'll give you a hint and tell you that under these new conditions, you should find that 98,000 apartments will have occupants at any time, so 196 of these, or 980 apartments, become vacant each da "If 49% of the vacant apartments are filled each day, how many vacant apartments must there be for the system to be in equilibrium, with 980 vacant apartments filled each day and 980 that become vacant each day? After you calculate this number, divide it by 100,000 to get the vacancy rate." So the vacancy rate is

Answer 1

Answer:

2.

Analysis occupancy rates:

• If 95000 apartments are occupied and 5000 are empty and if 1% of all the apartment dwellers move out each day, the no of apartments that become vacant each day are:

(b) 950

• If 19% of all the open apartments get new occupants each day, means on an average the apartment is empty fo bit more than 5 days.so if there are 5000 apartments, no of apartments get new occupants each day are:

  (b) 950

• Because no new apartments can be built in this city, supply and demand tells you that when the genie offers a 500 payment to each renter, rents should go up by   $500   per month

• If 49 % vacant apartments are filled each day, for the system to be in equilibrium no of vacant apartments must be there , ie vacancy rate is:   vacancy rate = 2%

• Prices can be rising in the markets for apartments, even with a positive vacancy rate and even when there are vacant apartments TRUE