Imagine the monthly market for 1 bedroom apartments in Kingston is characterized by the following equations, where P is monthly rent, Qd is the quantity demanded, Qs is the quantity supplied and Y is income:
- Imagine the monthly market for 1 bedroom apartments in Kingston is characterized by the following equations, where P is monthly rent, Qd is the quantity demanded, Qs is the quantity supplied and Y is income:
Qd=2000−3P+3Y
Qs=2P
Assume income is currently $1000 a month (Y=1000, in the equation above.)
The mayor, concerned about housing affordability, announces a rent control policy that sets a max price for a 1 bedroom apartment at $800. How does this policy influence the market price and quantity? Will all renters be better off due to this policy?
Include a diagram of your results in your answer.
- With this rent control policy still in place, what would happen if income increases from $1000 to $1500 a month in Kingston? Discuss the effects of this increase in income on the market (in full sentences), and show the effects of the change on a diagram (including any changes to price, quantity, and deadweight loss).
(You do not need to calculate any areas related to efficiency, just show any change in deadweight loss.)
- Calculate the price elasticity of supply between prices $800 and $900 using the midpoint method (reminder from above: Qs=2P). Using a complete sentence (or two), interpret what the price elasticity of supply means in this market.
- Imagine income in the city was still $1000/month.
The city council is concerned by the lack of availability of apartments, and instead of the rent control policy, suggests providing a $ 300 subsidy for people to rent apartments. Think of a subsidy as a negative tax where buyers pay rent, then receive a $ 300 cheque every month from the City of Kingston.
Would this policy ease the concerns of the city council? Would renters be paying more or less or the same as under the rent control policy? Would landlords get more or less? Carefully Explain.
