The demand for three-bedroom apartments in a specific town is
given by: while the supply of three-bedroom apartments is given
by . Answer the following questions with the of both
computations (and a sketch where appropriate). Price is in
dollars per unit.
(a): is the equilibrium rental price (in $ per unit) and
quantity of apartments leased in this market? [2 marks]
(b): is the price elasticity of demand for three-bedroom
apartments at the equilibrium price obtained in (a) above? AND
are the renters maximizing total revenue from leasing? [4 marks]
(c): To support the lower income households, suppose the city
government imposes a rental price ceiling of $3200. How many
apartments will be leased out and at what price in this market?
[2 marks]
(d): Briefly discuss what will happen to the equilibrium price
and quantity in each of the following cases [3 marks]
(i): The city government provides cheap financing to developers
to put up new apartments
(ii): A new more efficient method of constructing apartments is
discovered
(iii): Price of four-bedroom apartments increase.
