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Q1. The rent control agency of Pretoria city has found that aggregate demand is P =20...

Q1. The rent control agency of Pretoria city has found that aggregate demand is P =20 – 0.125Qd. Quantity is measured in tens of thousands of apartments. Price, the average monthly rental rate, is measured in hundreds of Dollars. The agency has also noted that the increase in Q at lower P results from more three-person families coming into the city from Livingstone and demanding apartments. The city’s board of realtors acknowledges that this is a good demand estimate and has shown that supply is Q S = 70 + 7 P.

A. If both the agency and the board are right about demand and supply, what is the free market price, quantity and show your answer graphically? (20marks)

B. What is the change in city population if the agency sets a maximum average monthly rent (price ceiling) of $300 and all those who cannot find an apartment leave the city?

C. Suppose the agency bows to the wishes of the board and sets a rental of $900 per month on all apartments to allow landlords a “fair” rate of return. If 50% of any long-run increases in apartment offerings come from new construction, how many apartments are constructed? (15marks)

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Expert Solution

Rahul Sunny answered 1 year ago
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