ECN 312 – Intermediate Microeconomic Theory Spring 2017
Please make sure that your problem set is legible and stapled. Please write your name and section number on your problem set. On your graphs, please label axes, curves, intercepts, and all points relevant to the question. Explain your work thoroughly in order to receive full credit. Possible points are given in parentheses.
1. (25) Consider the market for apartments in Tempe.
There is only one local apartment owner, Lord Land, who supplies apartments on a monthly ba- sis. The number of apartments supplied depends on the monthly rental price for apartments (R).
Tenants rent apartments by the month. The number of apartments demanded in a given month depends on the monthly rental price of apartments (R) and on the number of tenants looking for apartments (T).
The equations describing the supply and demand relationships are as follows:
Qs =5R+300 Qd = 3T − 15R
(a) (5) What is the demand for apartments when there are 3, 100 tenants looking for apartments that month? Note: your answer should be a function of R.
(b) (5) What is the equilibrium rent when T=3,100? What is the equilibrium quantity of apartments when T=3,100? Show these solutions graphically.
(c) (5) Tempe is concerned about the welfare of its citizens. To help tenants, the city passes a rent-control policy that requires landlords to charge no more than $400 per month. How many apartments are rented when T=3,100? Show this solution graphically.
(d) (5) Tempe is now concerned about the welfare of Lord Land. To help him out, they pass a minimum-rent policy that requires tenants to pay at least $620 per month. How many apartments are rented when T=3,100? Would this policy be successful? Describe in two sentences or less.
(e) (5) What is the effect of the policy described in (d) when there are 6, 200 tenants? Describe in two sentences or less.
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