Case Study Using Demand and Supply Analysis

1345 Words Aug 22nd, 2011 6 Pages
QUESTION 1

The demand for the apartments around that particular area will be relatively inelastic. When demand is relatively inelastic, a large amount of change in the price will still cause a small amount of change in the quantity. Assume that if there is a large amount of decrease in the price, it will only cause a small amount of increase in the quantity because the demand is relatively inelastic. Thus, the demand curve will be steeper. The factors that will cause the demand to be relatively inelastic are that the people who live in that area be likely to stay in that area because they cannot afford to live in other areas of the city. They prefer to live with people of their ethnic group and there is a discrimination against
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Therefore, the demand curve will increase because tenants pay lesser to rent the apartments and spending power of tenants also will increase. Thus, this will lead into a situation of shortage. For instants, renter’s salary is RM1000 and the tenant’s only needs to pay RM300 and the rest will be paid by the government. Figure 2.0 shows when demand has increased it will shift the demand curve to the right from (D1) to (D2). Apart from that, price will also increase from (P1) to (P2) and this will lead to the quantity increase from (Q1) to (Q2). Equilibrium point has shifted from point (A) to point (B). The supply curve remains unchanged. During the beginning of this supplement program, the renters of the apartment will gain apart from their 30% that paid by the government because the tenants will pay lesser for their rental expenses. Hence, the government will lose from the beginning. On the other hands in the future, renters of the apartment will lose from this supplement program because when time passes by the demand will increase and the owner or the producer of the apartment will increase its rents. Government will only pay the certain amount of money up to a limit for the renter. Therefore, the tenants will lose from this situation, while the owner or the producers of the apartments will gain the most. Lastly, government will remain unchanged because government can gain back the money from the supplement program

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