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1 July, 07:16

Your local government is concerned about the lack of affordable apartments in the area. To combat the problem it proposes to set the legal maximum rent on 1 bedroom apartments at $300 per month. You are asked to confirm whether or not this policy will solve the problem. You estimate that the inverse market demand is: p equals 1200 minus 2 Upper Q and the inverse market supply is: p equals Upper Q. You argue that this policy will cause an ▼ excess supply excess demand of nothing units per month (enter your answer as a whole number ). Further, you calculate that some consumers would be willing to pay as much as $ nothing a month for an apartment (round your answer to the nearest penny). You conclude that there will be a deadweight loss of $ nothing per month (round your answer to the nearest penny and enter the deadweight loss as a positive number). You add that your calculation of the welfare loss ▼ overestimates underestimates the actual loss.

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  1. 1 July, 07:19
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    Answer: excess demand, underestimate

    Explanation:

    P = 1200 - 2Q

    300 = 1200 - 2Q

    2Q = 1200 - 300

    2Q = 900

    Q = 900/2

    Q = 450

    Quantity demanded is 450 units

    Quantity supplied Q - P = 300

    Excess demand = 450 - 300 = 150

    The policy will lead to excess demand of 150 per month.

    P = 1200 - 2Q

    P = 1200 - 2 (300)

    = 1200 - 600

    = 600

    Willing to pay price is $600.

    Deadweight loss = 0.5 * (Price buyers are willing to pay - ceiling price) * (market quantity supplied - ceiling quantity supplied)

    = 0.5 (600-300) (400-300)

    = 0.5 (300) (100)

    = 15000

    Deadweight loss is $15000

    The welfare loss underestimate the actual loss
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