Answering questions related to equilibrium price and quantity in the market for rental apartments and the impact of rent control.

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Answering questions related to equilibrium price and quantity in the market for rental apartments and the impact of rent control.

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Contents
Part 1............................................................................................................................3
Part 2............................................................................................................................3
Part 3............................................................................................................................4
Part 4............................................................................................................................5
Reference.....................................................................................................................7
3
Part 1
1. The equilibrium price and the quantity for the rented apartment as shown in
the figure are \$1000 and 1000 units respectively. This is the point the demand
curve and the supply curve have intersected to produce the equilibrium. The
equilibrium is that point where the demand of the market is exactly equal to
the supply by the sellers (Trost, 2019).
2. As per the figure, due to the rent control at \$700, there will be more demand
at the market than supply. Therefore, there will be shortage of rented
apartment in the market. The new price ceiling will intersect the supply curve
at the point where the quantity of apartment rented will be 700.
3. Now that the rent control has been in effect,
i) The consumer surplus in this case is shown by the area A+B+C. This is
the area below the demand curve and above the price. This is called
the consumer surplus as the consumers have to pay less than their
willingness to pay to the producers (Besanko & Braeutigam, 2020).
ii) The producers’ surplus in this case is shown by the area D in the
figure. This is the area above the supply curve and below the price.
This is called the producers surplus as the producers with low
willingness to supply earns a more price in this case.
iii) The dead-weight loss is shown by the area of E+F in the figure. The
dead weight loss is the social loss due to the implementation of the rent
control.
Part 2
4. Before any tax is levied, the equilibrium price and quantity in the rental
apartment market are \$1000 and 1000 units respectively. The equilibrium
price and the quantity in case of the luxury watch market are \$1000 and 1000
units of watch. This has been collected from the intersection of the demand
and the supply curve in both the cases (Mankiw, 2020).
5.
Tax on apartment Tax on watches
Price paid by \$1300 \$1200

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