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Economics 102 Introductory Macroeconomics  Spring 2006, Professor J. Wissink
Problem Set 2 – DUE at the start of class on Wednesday Feb 15, 2006
Boxes will be removed ten minutes after the start of class.
Remember:
We will NOT accept problem sets late. Period.
Thanks for minding this policy and not asking if you can hand it in late.
1.
Let's model a month in the life of the rental market for apartments in Ithaca. Suppose that the market
demand curve for apartments is X
D
= 10,0005P, where X
D
is the number of apartments in the month
tenants are willing and able to rent at any given rent price P.
Suppose that the market supply curve of
apartments is X
S
= 2000+15P, where X
S
is the number of apartments landlords are willing and able to
rent at any rent price P.
a)
Graph the supply and demand curves.
b)
What are the equilibrium quantity and price in this market?
Suppose that the mayor of Ithaca wants to decrease rental costs to people residing in Ithaca.
The mayor
decides to issue a regulation stating a maximum rent landlords can charge in Ithaca.
c)
Assume the rent ceiling is set at $500 per apartment and discuss the consequences of this regulation.
(Be sure to determine: how many apartments will be rented and calculate any surplus or shortage of
apartments.)
d)
Assume the rent ceiling is set at $ 700 per apartment and discuss consequences of this regulation.
(Be sure to determine: how many apartments will be rented and calculate any surplus or shortage of
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 Spring '08
 KYLE
 Macroeconomics

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