hw04key - BINGHAMTON UNIVERSITY Department of Economics...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
BINGHAMTON UNIVERSITY Department of Economics Principles of Microeconomics (Econ 160B) Homework #4 Answer Key 1. (8 pts.) Figure 7.7 shows the market for bananas. Shade in the area of consumer surplus. Use the information provided to calculate consumer surplus. Consumer surplus is equal to (0.5)($0.5)(4,000) = $1,000. 2. (12 pts.) Suppose that the equilibrium rent for a two-bedroom apartment in downtown Chicago is $900 per month. The city council decides to place a maximum price on apartment rents and will not allow landlords to charge more than $700 per month. Draw this situation using a graph. Make sure that you show the original equilibrium and the effect of the maximum price on the market. What will happen in this market? What will happen to total surplus?
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
There will be excess demand of apartments because quantity demanded (QD) is greater than quantity supplied (QS). Total surplus will fall because some mutually beneficial trades cannot take place due to the maximum price.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 05/27/2008 for the course ECON 160B taught by Professor Michaelvardanyan during the Fall '08 term at Binghamton University.

Page1 / 3

hw04key - BINGHAMTON UNIVERSITY Department of Economics...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online