Question

MonthlyRentApartmentsDemandedApartmentsSupplied$2,50010,00015,0002,00012,50012,5001,50015,00010,0001,00017,5007,50050020,0005,000Start at the original (correct) equilibrium price and quantity in part (a).Suppose that the government wishes to decrease the market equilibrium monthly rent by increasing the supply of housing. Assuming that demand remains unchanged, by how many units of housing would the government have to increase the supply of housing in order to get the market equilibrium rental price to fall to $1500 per month? To $1000 per month? To $500 per month?a.Fall to $1500 per month: unitsb.Fall to $1000 per month: unitsc.Fall to $500 per month: units

Answer 1

Answer:

a) To $1,500 per month

• 2,500 units of housing

b) To $1000 per month

• 5,000 units of housing.

c) To $500 per month

• 7,500 units of housing.

Explanation:

1. Write the table:

MonthlyRent($)     Apartments Demanded    Apartments Supplied

  2,500                           10,000                            15,000

  2,000                           12,500                            12,500

  1,500                            15,000                            10,000

  1,000                            17,500                             7,500

    500                           20,000                             5,000

2. Original equilibrium price and quantity.

The equilbrium amount is when the appartments demanded equal the appartments supplied at the same price.

That happens when the price is $2,000 (second row), where the amount is equal to 12,500 apartments (demandend and supplied).

3. By how many units of housing would the government have to increase the supply of housing in order to get the market equilibrium rental price to fall?

a) To $1,500 per month

The basic assumption is that the demand remains unchanged; that means that for a rental price of $1,500 per month, the demand will be 15,000 (third row of the table) appartments, and that is the same amount of houses that shall be supplied by the goverment.

Thus the increase shall be of: 15,000 - 12,500 = 2,500 units of housing

b) To $1000 per month

For a rental price of $1,000 per month, the demand is 17,500 units of housing (fourth row).

Hence, the increase shall be of 17,500 - 12,500 = 5,000 units of housing.

c) To $500 per month

For a rental price of $500 per month, the demand is 20,000 units of housing (fifth row).

Hence, the increase shall be of 20,000 - 12,500 = 7,500 units of housing.