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Group Assignment

Prepared for:
Dr. Tamjid Ahmed Chowdhury (Tmr)
Course Instructor
of
BUS 525; Managerial Economics
School of Business and Economics (SBE)

Prepared by:
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Rent ($ per month) Quantity Demanded Quantity Supplied
(per month) (per month)
500 375,000 225,000
600 350,000 250,000
700 325,000 275,000
800 300,000 300,000
900 275,000 325,000
1000 250,000 350,000

a) To find out the equilibrium rent and equilibrium quantity, we first need to find out the
demand and supply equation. To do that we have to calculate slope of demand and
supply curve first.
Demand equation:
P1 = 500, QD1 = 375, 000
P2 = 600, QD2 = 350, 000
QD = bp + c
b = slope of demand curve = Dependent variable /Independent variable = QD/ P
b = QD2 - QD1 / P2 - P1
b = 350,000 - 375,000/ 600 - 500
b = - 250
QD = bp + C
375,000 = -250*500 + C
C = 500, 000
The demand equation, QD = 500,000 -250P

Supply Equation:
P1 = 500, QS1 = 225, 000
P2 = 600, QS2 = 250, 000
QS = C + dp
d = slope of supply curve = Dependent variable /Independent variable = QS/ P
d = Qs2 Qs1 / P2 - P1
d = 250,000 - 225,000/ 600 - 500
d = 250
Qs = C + dp
225,000 = 250*500 + C
C = 100, 000
The supply equation, Qs = 100,000 + 250P

In Equilibrium:

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Qd = Qs
500,000 -250P = 100,000 + 250P
-250P - 250P = 100,000 - 500,000
-500P = -400,000
P = -400,000/-500
P = 800
The equilibrium Rent is $800.
From demand equation,
QD = 500,000 -250*800
QD = 300, 000
The equilibrium quantity is 300,000.

Figure 1: Supply and Demand Graph, and Equilibrium.

In equilibrium, there is no shortage or surplus thats why every renter will find a
landlord and no apartment will left for rent.

b) At Price Ceiling, rent is $600


So, at this price Quantity demand of apartment is
QD = 500,000 -250P
QD = 500,000 -250*600
QD= 350, 000
Quantity supply of apartment is
QS = 100,000 + 250P
QS = 100,000 + 250*600
QS = 250,000

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Figure 2: Demand and Supply Graph after Price Ceiling.

Since, this controlled price is lower than the equilibrium price, quantity demand of
apartment will raise up-to 350,000 but supply of apartments will decrease to 250,000.
The actual shortage is 50,000.

c) In Equilibrium:
CS (Consumer Surplus) = 1 + 2 + 5
CS= (1200*300,000)/2= 180,000,000
PS (Producer Surplus) = 3 + 4 + 6
PS= (800* 300,000)-(1/2*800*200,000) = 160,000,000

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Figure 3: Consumer Surplus (CS), Producer Surplus (PS) after Price Ceiling and Deadweight
Loss (DWL).

After Price Control:


CS` = 1 + 2 + 3
CS` = 1 + (2 + 3)
CS` = ( * 1000 * 250,000) + (400 * 250,000)
Cs` = 225,000,000

PS` = 4
PS` = (600 * 250,000) ( * 150,000 * 600)
PS` = 105,000,000
CS = - 3 - 5
PS = - 3 - 6
DWL (Deadweight Loss) = - 5 - 6
DWL = * 400 *50,000
DWL = 10,000,000

d) Due to the price control, demand is increased to 350,000, but the supply fall to
250,000. As a result of this shortage and lack of proper government monitoring the
apartment owners can charge a higher price. This is known as the black market price.
Since, there is a shortage of apartments in the market the tenants will be willing to pay
a price up-to $1000.

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Figure 4: Effect of Price Control; Black Market Price.

QD = 500,000 -250P

250,000 = 500,000 -250P


P = 1000
This is the maximum price the landlords can charge.