midreviewa

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-10 \$ 20 P E = \$5 0 50 75 100 D Q S Q E -10 \$ 2 0 7 D Q S 95 55 5 9 -10 \$ 2 0 7 D Q S 95 55 A B 5 1 Midterm Review Answers 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? ___\$5___ What is the equilibrium quantity of apartments? _____75_____ Graph this situation below. Q D = Q S in equilibrium 100 –5P = 50 + 5P 50 = 10P 5 = P E Q D = 100 – 5(5) = 75 = Q E Q S = 50 + 5(5) = 75 = Q E 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. Q D = 100 – 5(1) Q S = 50 + 5(1) AB = Shortage = 40 units = 95 QS = 55 At the price ceiling of \$100 per rental unit, a shortage of 40 units ( measured in 10,000s), or 400,000 rental units o c c u r s . 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.

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