Question

3. The elected officials in a university town are concerned about the "exploitative" rents being charged to college students. The town council is contemplating the imposition of a e350 per month rent ceiling on apartments in the city. An economist at the university estimates the demand and supply curves as: QD 5600-8P Qs-500+ 4P, where P- monthly rent, and Q-number of apartments available for rent. For purposes of this analysis, apartments can be treated as identical (a)Calculate the equilibrium price and quantity that would prevail without the price ceiling. Draw a diagram and show the producer and consumer surplus at this equilibrium. in consumer and/or producer surplus. policy? Explain your answer. b) What quantity will eventually be available if the rent ceiling is imposed? Using the diagram show any gains or losses (c) Does the proposed rent ceiling result in net welfare gains? Would you advise the town council to implement the

Answer 1