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midreview

# midreview - Midterm Review 1 The rent control agency of...

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Midterm Review 1. The rent control agency of Emerald City has found that the demand and supply for apartments are: Demand: Q D = 100 – 5P Supply: Q S = 50 + 5P In both cases quantity is measured in tens of thousands of rental units and price is measured in hundreds of dollars per month. a) Given this information, what is the equilibrium price for apartments? What is the equilibrium quantity of apartments? Graph this situation below. b) If a rent control agency sets a maximum rent of \$100 per month, explain how this will affect the apartment rental market. Answer must include graphical, numerical and verbal explanations. Be thorough. c) Now suppose instead that the rent control agency sets rental rates at a minimum of \$900 per month to allow landlords a “fair” rate of return. Explain how this price control will affect the rental market. Answer must include graphical, numerical and verbal explanations. Be thorough.

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d) Calculate the price elasticity of demand between the equilibrium price and the price control given in part (b). Show all work and give a complete interpretation of this elasticity. e) Calculate the price elasticity of supply between the equilibrium price and the price control given in part (c). Show all work and give a complete interpretation of this elasticity.
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