ECON 1050 Chapter Notes - Chapter 6: Production Quota, Tax Incidence, Economic Equilibrium

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yellowwhale375

4 Sep 2013

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A price ceiling or price cap is a regulation that makes it illegal to charge a price higher than a specified level. When a price ceiling is applied to a housing market it is called a rent ceiling. If the rent ceiling is set above the equilibrium rent, it has no effect. The market works as if there were no ceiling. But if the rent ceiling is set below the equilibrium rent, it has powerful effects. Labour market and housing are 2 most important markets. Price is determined by supply and demand; sometimes governments don"t like that price, they want a different price and will impose laws that make it illegal to charge a higher price. Example: the equilibrium rent is ,000 a month; a rent ceiling is set at a month. The equilibrium rent is in the illegal region. At the rent ceiling, the quantity of housing demanded exceeds the quantity supplied; there is a shortage of housing.

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Consider the market for rental housing in Your town. The demand and supply schedules for rental housing are given in the table.

Price ($ per month)	Quantity Demanded (thousands of units)	Quantity Supplied (thousands of units)
1100	40	80
1000	50	77
900	60	73
800	70	70
700	80	67
600	90	65
500	100	60

In a Free market for rental housing, what is the equilibrium price and quantity?
Now suppose the government in Your town decides to impose a ceiling on the monthly rental price. What is the highest level at which such a ceiling could be set in order to have any effect on the marker? Explain your answer.
Suppose the maximum rental price is set equal to $500 per month. Describe the effect on quantity demanded, supplied, and exchanged in the rental-housing market.
Suppose a black market develops in the presence of the rent controls in part (c). What is the black market price that would exist if all of the quantity supplied were sold on the black market?

harlequincrow283

Suppose that the demand and supply schedules for rental apartments in the city of Gotham are as given in the table below.

Rent	Demand	Supply
2,500.00	10,000	15,000
2,000.00	12,500	12,500
1,500.00	15,000	10,000
1,000.00	17,500	7,500
500.00	20,000	5,000

1. What is the market equilibrium rental price per month and the market equilibrium number of apartments demanded and supplied?

2. If the local government can enforce a rent-control law that sets the maximum monthly rent at $1,500, will there be a surplus or a shortage? Of how many units? And how many units will actually be rented each month?

3. Suppose that a new government is elected that wants to keep out the poor. It declares that the minimum rent that can be charged is $2,500 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?

4. Suppose that the government wishes to decrease the market equilibrium monthly rent by increasing the supply of housing. Assuming that demand remains unchanged, by how many units of housing would the government have to increase the supply of housing to get the market equilibrium rental price to fall to $1500 per month? To $1000 per month? To $500 per month?

salmonwombat608

suppose that the demand and supply schedules for rental apartments in the city of gotham

Suppose that the demand and supply schedules for rental apartments in the city of Gotham are as given in the table below.

Rent	Demand	Supply
2,500.00	10000	15000
2,000.00	12500	12500
1,500.00	15000	10000
1,000.00	17500	7500
500.00	20000	5000

1.What is the market equilibrium rental price per month and the market equilibrium number of apartments demanded and supplied?

2.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?

3.Suppose that a new government is elected that wants to keep out the poor. It declares that the minimum rent that can be charged 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?

4.Suppose that the government wishes to decrease the market equilibrium monthly rent by increasing the supply of the housing. Assuming that demand remains unchanged, by how many units of housing would the government have to increase the supply of housing in order to get the market equilibrium rental price to fall to $1500 per month? To $1000 per month? To $500 per month?

ultramarinewoodchuck739

ECON 1050 Chapter Notes - Chapter 6: Production Quota, Tax Incidence, Economic Equilibrium

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