MBA5130_WK2.docx HW - Activity Description Assume that the...

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Activity Description Assume that the City Council in Prescott, AZ is considering implementing price ceilings on rental units based on the number of bedrooms in the unit. The demand function for rental units (on a single bedroom equivalent basis) is given by Q D = 120 – 4P and the supply function is given by Q S = 2P, where P is price and Q is quantity. The Council is giving consideration to imposing a ceiling price on rental units of P max = 16. 1. Using the given functions, draw a corresponding demand curve and a supply curve. Properly label the equilibrium price and quantity. Then show what will happen to equilibrium if the City Council imposes a price ceiling at 16. (There are numerous guides online that demonstrate how to draw supply and demand curves; most are done in Excel and then you can copy and paste the graph into your word document where you will write out answers to the following questions). 2. Are consumers of rental-housing in Prescott well-served by this price ceiling policy? Provide a careful economic analysis in support of your claim.
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