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The rent control agency of New York City has found that aggregate demand is

 QD = 100 - 5P

Quantity is measured in tens of thousands of apartments. Price, the average monthly rental rate, is measured in hundreds of dollars. The agency also noted that the increase in Q at lower P results from more three person families corning into the city from Long Island and demanding apartments The city"s board of realtors acknowledges that this is a good demand estimate and has shown that supply is

 Qs 50 + 5P.

a. If both the agency and the board are right about demand and supply, what is the free-market price? What is the change in city population if the agency sets a maximum average monthly rent of $100 and all those who cannot find an apartment leave the city?

b. Suppose the agency bows to the wishes of the board and sets a rental of $900 per month on all apartments to allow landlords a "fair" rate of return. If 50 percent of any long-run increases in apartment offerings comes from new construction, how many apartments are constructed?

Microeconomics, Economics

  • Category:- Microeconomics
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