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Unformatted text preview: PADP 6950: Founda1ons of Policy Analysis Introduc)on PRACTICE Angela Fer1g, PhD Pit Market Game 1 AHer the game discussion Buyers' Number valua,on of people Sellers' costs Number of people 53 48 43 38 33 28 11 16 21 26 31 36 Why did the price converge to $______? AHer the game discussion Let's draw the supply and demand curves from the last round Buyers' Number Demand valua,on of people Sellers' costs Number Supply of people 53 48 43 38 33 28 11 16 21 26 31 36 2 Supply and Demand Curves What is the equilibrium price derived from this graph? What is the average price from the last round? Conclusion from the game Equilibrium: Prices adjust un1l the amount that people demand of something is equal to the amount that is supplied. 3 Group Exercises Problem 1 Assume 8 people want to rent an apartment; reserva1ons prices are: Person Reserva1on Price A 40 B 25 C 30 D 35 E 10 F 18 G 15 H 5 a) Plot the market demand curve b) Assume supply of apartments is fixed at 5 units; what is the highest price that would make the market demand equal to 5 units? c) Assume the supply goes up to 6 units; what is the range of equilibrium prices? 4 Problem 2 Assume that there are 5 units, but 1 is converted to a condo. Person A decides to buy the condo. What is the highest price at which the demand will equal the supply? Problem 3 Suppose that a monopolist owns all 5 of the apartments. Assume that she must charge one price for all apartments. Use the table below to figure out the price and quan1ty that the monopolist will choose to maximize revenue. Number Price Revenue 1 2 3 4 5 6 7 8 5 Problem 4 Suppose that there are 5 apartments and that the city imposed rent control. The maximum rent allowed is $9. Assume that A, B, C, D, and E get an apartment but F, G, and H are frozen out. a) If sublebng is prac1ced, who will sublet to whom in equilibrium? b) What is the maximum amount that can be charged for the sublet payment? Problem 5 Suppose that a tax of $5 was levied on renters. a) What is the maximum that renters would be willing to pay landlords if they each had to pay a $5 tax? Person Reserva1on Price A B C D E F G H b) What is the max equilibrium price if 5 apartments are rented (the amount received by the landlord)? c) How does this compare to what happens if the tax is levied on the landlords? 6 ...
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- Spring '11