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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