Suppose that the demand and supply schedules for rental apartments in the city o

Question

Suppose that the demand and supply schedules for rental apartments in the city of Gotham are as given in that table below:
Monthly Rent     Apt Demanded    Apt Supplied
$2500                       10,000           15,000
2000                         12,500           12,500
1500                         15,000           10,000
1000                         17,500            7,500
500                           20,000            5,000

a. What is the market equilibrium rental price per month and the market equilibrium number of apartments demanded and supplied?
b. If the local government can enforce a rent-control law that sets the maximum monthly rent at $1500, will there be a surplus or a shortage? Of how many units? And how many units will actually be rented each month?
c. Suppose that a new government is elected that wants to keep out the poor. It declares that the minimum rent that can be changed is $2500 per month. If the government can enforce that price floor, will there be a surplus or a shortage? Of how many units? And how many units will actually be rented each month?

Explanation / Answer

Since at equilibrium is Demand = Supply Here this condition occurs at 12,500 units at which... Apartments demanded = 12,500 Apartments supplied = 12,500 Monthly Rent at equilibrium = $2000 Equilibrium rental price = $2000 Equilibrium quantity = 12,500 B. In this case, the price will be set lower than equilibrium causing a shortage in the market. The shortage would be 15000-10000=5000 units with 10000 units rented out C. In this case there will be a surplus on the market. The surplus would be 10000-15000=-50000 or a surplus of 5000 apartments with only 10000 rented out

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