Question

Assume that the diagram below describes the apartment market in Newark.

Part 1: Suppose that the government decides to impose rent control in the amount of $600. Draw the price ceiling line.

Part 2: Use drop lines to indicate the quantity demanded (Q-Demanded) and the quantity supplied (Q-Supplied) after the imposition of the rent control.

Part 3: Use an area tool to illustrate the amount of consumer surplus if only those who value apartments at a price greater than or equal to the price on the demand curve that corresponds to the quantity landlords are willing to supply given the price ceiling. Label this area Cons-Surplus.

Part 4: Use an area tool to illustrate the amount of producer surplus if producers adhere to the price set by the price ceiling. Label this area Prod-Curplus.

Part 5: Use an area tool to illustrate the value of wasted resources as a result of the price ceiling and label it Resource Waste.

Part 6: Use an area tool to illustrate the deadweight loss (D-W-Loss) due to the imposition of the rent control.

Make sure that you have labeled everything appropriately.

Answer 1