Question

# True or False: Indicate whether each of the following statements is true or false and explain...

True or False: Indicate whether each of the following statements is true or false and explain why.

4. The industry supply curve could be downward sloping in the long run.

1. The market for apartment rentals is in equilibrium when the rent is \$1000 per month and the quantity of apartments rented is 2,000. A rent control law is passed that sets the maximum rent at \$800. If the elasticity of demand for apartments is 1.2 and the elasticity of supply is .5, then the shortage of apartment is 500 apartments.

The long run supply curve is vertical. The short run supply curve is downward sloping. Therefore, the given statement is false.

b) False.

The equilibrium price = \$1000

New price = \$800

Changes in price ( P) = 1000 - 800 = \$200

Elasticity of demand = Changes in quantity demanded / Changes in price

=> 1.2 = Changes in quantity demanded / 200

=> Changes in quantity demanded = 1.2 × 200 = 240.

Elasticity of supply = Changes in quantity supplied / Changes in price

=> 0.5 = Changes in quantity supplied / 200

=> Changes in quantity supplied = 0.5 × 200 = 100.

Therefore, for new price level \$800 the shortage of apartment is (240 - 100) = 140.

Therefore, the given statement is false.