Problem 5: Price Interventions (5 points) Suppose that the city of Los Angeles is debating between...
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Problem 5: Price Interventions (5 points) Suppose that the city of Los Angeles is debating between two policies intended to create more affordable 1-bedroom apartments. Currently the demand and supply of apartments is as follows: Rent Quantity Demanded Quantity Supplied $1600 14,000 26,000 $1400 16,000 24,000 $1200 18,000 22,000 $1000 20,000 20,000 $800 22,000 18,000 $600 24,000 16,000 $400 26,000 14,000 a) The first policy being considered is instituting a maximum rental price of 1-bedroom apartments at $800. Sketch a graph of the market for 1-bedroom apartments in Los Angeles. Using either different colors or letters to label each of the areas, indicate the effects of the price limit by showing the consumer and producer surplus before and after the new policy as well as any deadweight loss. (5 points) (We will consider the second proposal in the next problem set.) Problem 5: Price Interventions (5 points) Suppose that the city of Los Angeles is debating between two policies intended to create more affordable 1-bedroom apartments. Currently the demand and supply of apartments is as follows: Rent Quantity Demanded Quantity Supplied $1600 14,000 26,000 $1400 16,000 24,000 $1200 18,000 22,000 $1000 20,000 20,000 $800 22,000 18,000 $600 24,000 16,000 $400 26,000 14,000 a) The first policy being considered is instituting a maximum rental price of 1-bedroom apartments at $800. Sketch a graph of the market for 1-bedroom apartments in Los Angeles. Using either different colors or letters to label each of the areas, indicate the effects of the price limit by showing the consumer and producer surplus before and after the new policy as well as any deadweight loss. (5 points) (We will consider the second proposal in the next problem set.)
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