Question

The following table depicts the quantity demanded and quantity supplied of studio apartments in a small college town.

What are the market price and equilibrium quantity of apartments in this town? If this town imposes a rent control of $650 per month, how many studio apartments will be rented?

Short answer

Equilibrium quantity= 2,000

Equilibrium price= $700

At $650, 1,800 apartments will be rented.

Step-by-step solution

Step1. Introduction

Demand is the amount of goods required or asked by the people in that economy.

Supply is the amount of goods given or available in an economy.

Market equilibrium is where demand and supply are equal, the price corresponding to this is the market clearing price.

Step2. Explanation

Demand and supply are equal at $700, i.e. 2000 each. Hence,

Equilibrium quantity= 2,000

Equilibrium price= $700

Since, rent control is imposed and maximum rent that can now be charged is $650. Since the equilibrium is $700, now the new price would be the maximum possible imposed rent, i.e. $650.

Supply is 1800 against 2500 demand

So, number of apartments on rent will be 1800 i.e. the supply available.