Macroeconomics Chapter 4 Appendix Notes.docx - Chapter 4 Appendix Suppose that economists have estimated that the demand for apartments in New York City

Macroeconomics Chapter 4 Appendix Notes.docx - Chapter 4...

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Chapter 4 Appendix Suppose that economists have estimated that the demand for apartments in New York City is Q D = 4750000-1000P And the supply of apartments is: Q S -1000000+1300P We have used Q D for the quantity of apartments demanded per month. Q S for the quantity of apartments supplied per month. In reality, both the quantity of apartments demanded and the quantity of apartments supplied will depend of more than just the rental price of apartments in New York City. The demand for apartments in New York City will also depend on the average incomes of families in the New York area and on the rents of apartments in the surrounding cities. For simplicity, we will ignore these other factors. With no government intervention, we know that at competitive market equilibrium, the quantity demanded must equal the quantity supplied or: Q D = Q S We can use this equation, which is called an equilibrium condition , to solve for the equilibrium monthly apartment rent by setting the quantity demanded from the demand equation equal to the quantity supplied from the supply equation: 4750000-1000P=-1000000+1300P 5750000=2300P P= 5750000/2300= $2500 We can then substitute this price back into either the supply equation or the demand equation to find the equilibrium quantity of apartments rented: Q D =4750000-1000P=4750000-1000(2500)=2250000 Or Q S = -1000000+1300P=-1000000+1300(2500)=2250000 The below figure illustrates the information from these equation in a graph. The figure shows the values for rent when both the quantity supplied and the quantity demanded are zero. These values can be
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