Chapter 1
NAME
The Market
Introduction. The problems in this chapter examine some variations on the apartment market described in the text. In most of the problems we work with the true demand curve constructed from the reservation prices of the consumers rather than the “smoothed” demand curve that we used in the text. Remember that the reservation price of a consumer is that price where he is just indifferent between renting or not renting the apartment. At any price below the reservation price the consumer will demand one apartment, at any price above the reservation price the consumer will demand zero apartments, and exactly at the reservation price the consumer will be indifferent between having zero or one apartment. You should
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Further suppose that people A, B, C, D, and E manage to get an apartment, while F, G, and H are frozen out.
4
THE MARKET
(Ch. 1)
(a) If subletting is legal—or, at least, practiced—who will sublet to whom in equilibrium? (Assume that people who sublet can evade the city rentcontrol restrictions.)
E, who is willing to pay only F,
$10 for an apartment would sublet to who is willing to pay $18.
(b) What will be the maximum amount that can be charged for the sublet payment?
$18. A,
(c) If you have rent control with unlimited subletting allowed, which of the consumers described above will end up in the 5 apartments?
B, C, D, F.
(d) How does this compare to the market outcome?
It’s the
same.
1.5 (2) In the text we argued that a tax on landlords would not get passed along to the renters. What would happen if instead the tax was imposed on renters? (a) To answer this question, consider the group of people in Problem 1.1. What is the maximum that they would be willing to pay to the landlord if they each had to pay a $5 tax on apartments to the city? Fill in the box below with these reservation prices. Person Reservation Price A B C D E F G H
35
20
25
30
5
13
10
0
(b) Using this information determine the maximum equilibrium price if there are 5 apartments to be rented.
$13.
(c) Of course, the total price a renter pays consists of his or her rent plus the tax. This
32. Which of the following amounts must be included in the gross income of the recipient?
Disregard the new tax from number three. Now assume the government imposes a price ceiling of $100 in this market, as the result of protest of price gouging by sellers. What would happen to the price and quantity in this market?
B. At some point in your life, you will have make the decision to buy, rent or build a home. I think it is necessary to know the
In the book, Nickel and Dimed, Barbara Ehrenreich mentions the problem of rents is the market. When the market fails to provide necessary goods, such as affordable housing, we expect the government to step in and help. We decide to believe this, because, in the case of health care, the government offers Medicare to the elderly, Medicare to the poor, and many state programs to poor children. But, with housing, radical increases of the rental market has been followed by a retreat of the public sector.
There are two general partners, each of whom contributes $5,000 in capital to a limited partnership. There are two
This is a result of a demand shift to the left related to a lack of available tenants for the apartments. The property management company has to decrease rental rates allowing the quantity supplied to decrease as well (University of Phoenix, 2012), creating a downward swing in the supply curve. The price of rentals decreased to create less quantity that is available for rent creating equilibrium and a decrease in surplus. This is a difficult decision to lower price significantly but will continue to create revenue for the property management company while decreasing supply of vacancy.
Therefore, we would only be willing to pay at the most, (27-22) orders worth of rent, which = 5 * (2.00 + 0.70) = $13.50 per day.
class RentalCharges which will have symbolic constants for this data. If the prices change, none
(d) Received $800 from customers in payment of their accounts. Cash 800/ Net Income 800
The new audio greeting message affects the demand for greeting cards. The demand for greeting cards decreases because greeting cards and audio greeting cards are substitutes. The demand curve for greeting cards pads shifts leftward, from D0 to D1 in Figure 4.6. Simultaneously the fall in the cost of producing a greeting card affects the supply. The fall in the cost of producing greeting cards increases the supply and the supply curve shifts rightward, from S0 to S1 in Figure 4.6. At the initial price of a greeting card, $5.00 in Figure 4.6, there is a surplus of 60 greeting cards per week. The surplus forces the price lower, so the equilibrium price of a greeting card
4. Using the following information for individuals and their willingness to pay for a bottle of ginger ale, calculate the total consumer surplus at a market price of $5.
some initial work estimating the likely relationship between what tenants would be willing to pay
But at the same time one must keep in mind that how much it will cost follow about the consumption by each resident. As we see in this example, food service, supportive services are around 43% of the total costs, so we can maintain accounts for each resident for these services, at the same time, laundry services are only 3.74% of the total costs, and it is not advisable to maintain laundry costs for each resident, which may cost more.
well reviewed and ‘safier’ renter. This would give hosts an incentive to accept more renters but
The issue of introducing regulations and limits to the prices at which rents are set has been long debated by economists and policymakers. Morally considered, price caps and rent regulation seem an effective strategy in allowing lower to middle income families and individuals rent out a home, however, economists generally believe that such regulations negatively impact the housing market and the supply of housing. In this essay, the issue of price regulations within the housing market will be discussed from a microeconomic standpoint, with brief acknowledgement to the social effects