Answer to Question #244871 in Microeconomics for Biba

Question

4. Consider a competitive market for apartments. What would be the effect on the equilibrium output and price after the following changes (other things held
equal)? In each case, explain your answer using supply and demand.
a. A rise in the income of consumers
b. A $10-per-month tax on apartment rentals
c. A government edict saying apartments cannot rent for more than $200 per month
d. A new construction technique allowing apartments to be built at half the cost
e. A 20 percent increase in the wages of construction workers

Answer 1

a. A rise in the income of consumers

Increase in income will increase demand for apartments since consumers will be able to afford.This will raise the price of the apartments because of their reduced quantity.

b. A $10-per-month tax on apartment rentals

A tax will increase the price of apartments making their demand to decrease.

c. A government edict saying apartments cannot rent for more than $200 per month

Government edict will affect the demand depending whether it's above or below the equilibrium price. If set above the equilibrium price it will make apartments costly thereby reducing the demand.

d. A new construction technique allowing apartments to be built at half the cost

Reduction of building cost will increase supply of apartments as their prices reduce too. This will lead to an increased demand.

e. A 20 percent increase in the wages of construction workers

Increase in wages will increase the cost of building apartments, thereby reducing their supply as prices rise.