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    Exercise 2 2.1. College Enrollment and Apartment Prices: A. S D A

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    The document discusses three scenarios involving changes in supply and demand for different goods and markets: 1) A 15% increase in college enrollment leads to a 15% increase in demand for apartments in a college town. This shifts the demand curve right, increasing the equilibrium price of apartments to $440. 2) Regulations that increase house building costs by 12% decrease housing supply by 12%. This shifts the supply curve left, increasing the equilibrium price of new housing to $206,000. 3) Import restrictions that decrease the steel supply by 24% shift the steel supply curve left, raising the equilibrium steel price to $108 per unit, an 8% increase.

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    Exercise 2 2.1. College Enrollment and Apartment Prices: A. S D A

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    Trần Đức Thuận
    216 views3 pages
    The document discusses three scenarios involving changes in supply and demand for different goods and markets: 1) A 15% increase in college enrollment leads to a 15% increase in demand for apartments in a college town. This shifts the demand curve right, increasing the equilibrium price of apartments to $440. 2) Regulations that increase house building costs by 12% decrease housing supply by 12%. This shifts the supply curve left, increasing the equilibrium price of new housing to $206,000. 3) Import restrictions that decrease the steel supply by 24% shift the steel supply curve left, raising the equilibrium steel price to $108 per unit, an 8% increase.

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    The document discusses three scenarios involving changes in supply and demand for different goods and markets: 1) A 15% increase in college enrollment leads to a 15% increase in demand for apartments in a college town. This shifts the demand curve right, increasing the equilibrium price of apartments to $440. 2) Regulations that increase house building costs by 12% decrease housing supply by 12%. This shifts the supply curve left, increasing the equilibrium price of new housing to $206,000. 3) Import restrictions that decrease the steel supply by 24% shift the steel supply curve left, raising the equilibrium steel price to $108 per unit, an 8% increase.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    216 views3 pages

    Exercise 2 2.1. College Enrollment and Apartment Prices: A. S D A

    Uploaded by

    Trần Đức Thuận
    The document discusses three scenarios involving changes in supply and demand for different goods and markets: 1) A 15% increase in college enrollment leads to a 15% increase in demand for apartments in a college town. This shifts the demand curve right, increasing the equilibrium price of apartments to $440. 2) Regulations that increase house building costs by 12% decrease housing supply by 12%. This shifts the supply curve left, increasing the equilibrium price of new housing to $206,000. 3) Import restrictions that decrease the steel supply by 24% shift the steel supply curve left, raising the equilibrium steel price to $108 per unit, an 8% increase.

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    © All Rights Reserved
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    of 3

    Exercise 2

    2.1. College Enrollment and Apartment Prices


    Consider a college town where the initial price of rental apartments is $400 and the
    initial quantity is 1,000 apartments. The price elasticity of demand for apartments is
    1.0 and the price elasticity of sully of apartments is 0.5.
    a. Use demand and supply curves to show the initial equilibrium, and label the
    equilibrium point a.
    b. Suppose that an increase in college enrollment is expected to increase the
    demand for apartments in college town by 15 percent. Use your graph to show
    the effects of the increase in demand on the apartments market. Label the new
    equilibrium point b.
    c. Predict the effect of the increase in demand on the equilibrium price of
    apartments.

    a. P S
    $ D’
    D
    440 B
    400 A

    0 1000 Q

    The initial demand equation is: P= a-b.Qd


    Since Ep= Q’p. ( P/Q)  Ep= ( a-b.Qd)’.P/Q Ep= -b. P/Q
     b= P/ (Q.Ep)  b= 400/(1000.1) = 0.4
     P= a-b.Qd  400= a- 0.4.1000  a=800
     The demand equation is: P= 800- 0.4.Qd
    The demand curve will intersect the supply curve at a price of $400 and a quantity of
    1000.
    b. An increase in college enrollment is expected to increase the demand for
    apartments in college town by 15 percent .
    The demand curve will shift to the right resulting in a new equilibrium with a higher
    price and a higher quantity.
    c. Predict the effect of the increase in demand on the equilibrium price of
    apartments:
    Percentage change in euilibirum price = %15 / ( 1+ 0.5) = 10%
    So, if an increase in college enrollment is expected to increase the demand for
    apartments in college town by 15 percent, new equilibrium price of apartments is:
    400. ( 100% + 10%) = 440 ($)
    The initial demand equation is: P= 800- 0.4.Qd
     The after demand equation is: 1.1P= 800 – 0.4x 1.15.Qd
     P= 800/11 -23/50.Qd

    2.2 Regulations and Price of Housing


    Suppose local building regulations increase the cost of building new houses,
    decreasing supply by 12 percent. The initial price of new housing is $200,000, the
    price elasticity of demand is 1.0, and the price elasticity of supply is 3.0. Predict what
    is the effect of the regulations on the equilibrium price of new housing. Illustrate your
    answer with a graph that shows the initial point (a) and the new equilibrium (b).
    Percentage chande in equilibrium pice : -(-12%) / ( 1+3)= 3%
    New equilibrium price of new housing : 200,000. ( 100%+3%)= 206,000 ($)

    When there is a decrease in supply, the supply curve will shift to the left.

    P D
    S’
    $
    B S
    206,000

    200,000

    0
    Q
    2.3 Import Restrictions and the Price of Steel
    Suppose import restrictions on steel decrease the supply of steel by 24 percent.
    The initial price of steel is $100 per unit, the elasticity of demand is 0.7, and the
    elasticity of supply is 2.3. Predict what is the effect of the import restrictions on the
    equilibrium price of steel. Illustrate your answer with a graph that shows the initial
    point (a) and the new equilibrium (b).
    Percentage change in equilibrium price = −(−24) / (0.7+2.3)= 8%
    New equilibrium price of steel: 100 x (100% + 8%) = 108($).
    When there is a decrease in supply, the supply curve will shift to the left.
    P D
    S’
    B
    108 S

    100
    A

    0
    Q

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