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Any housing units that are not maintained become low quality housing units. Suppose that the current stock of low quality housing is zero, so the

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Any housing units that are not maintained become low quality housing units. Suppose that the current stock of low quality housing is zero, so the only low quality housing next year will be the houses that lter down. (e) What is the quantity supplied in the low quality housing market next year, if the government issues 15 licenses for high quality homes? (f) What is the quantity supplied in the low quality housing market next year, if the government issues 0 licenses for high quality homes? Question 3 - Filtering In the city of Residentia, there are currently 100 high quality homes. Depending on the rent for high quality homes (pH), homeowners will decide whether or not to maintain their homes. The fraction of homeowners who perform maintenance is given by: M _ pH/200 0 3 m s 200 _ 1 pH > 200 The government also issues licenses for 15 new high quality homes to be constructed next year (assume these homes are always constructed). Therefore, the quantity supplied of new homes next year is given by: oi, : 100M + 15 (a) Draw the supply curve for high quality housing. Your diagram should have: 0 Q on the horizontal axis 0 Label the price at which the supply curve becomes vertical (perfectly inelastic) 0 Label the quantity supplied at a price of zero Demand for high quality homes is given by: 93 2 120 39;; (b) On the same diagram as before, draw the demand curve for high quality homes next year. (c) Find the equilibrium quantity and price of high quality homes next year. (d) Suppose that the government instead issues zero licenses for new high quality homes. Find the equi librium quantity of high quality homes next year. [You will need to write down a new supply curve for high quality housing]

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