Question

Your local government is concerned about the lack of affordable apartments in the area. To combat the problem it proposes to set the legal maximum rent on 1 bedroom apartments at $300 per month. You are asked to confirm whether or not this policy will solve the problem. You estimate that the inverse market demand is: p = 1200 - 2Q and the inverse market supply is: p=Q. You argue that this policy will cause an y of units per month (enter your answer as a whole number). Further, you calculate that some consumers would be willing to pay as much as $ a month for an apartment (round your answer to the nearest penny). You conclude that there will be a deadweight loss of $ per month (round your answer to the nearest penny and enter the deadweight loss as a positive number). You add that your calculation of the welfare loss the actual loss.

Answer 1

The legal maximum rent p= $300 /month market demande p=1200-20 Market supply pre Drawing the graphs • Price 1200 mm .600 panool - - - - - Quantity une . for p = 300 a [ 900-450 ] Quantity demanded Cluantity demanded: 300= 1200-240 Cuantity supplied : p=4 => [ouzar] [ this policy will cause an excess demand of L 150 units per month. So, the Cluantity traded in market will be a = min {Qo, as} = min {300, 450) =300 for 1-300; the maximum willingness to pay pa 1200 - 2(30•)- $ 600 [from some consumers are willing to pay as much as $600] a month for an Apartment

De aelweight loss = Area of A FUE = (FU) CHE) = (300) Clou) = $15000 per month fos boere will be deel weight loss of $1500 per month. DU DE e