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Assume that theres is a well-defined geographic area of a city. The area js composed exclusively of apartments and is populated by low-income residents. The
Assume that theres is a well-defined geographic area of a city. The area js composed exclusively of apartments and is populated by low-income residents. The people who live in the are tend to stay in that area because 1. They cannot afford to live in other areas of the city 2. They prefer to live with people of their own ethnic group 3. There is discrimination against them in other areas of the city Rents paid are a very high percentage of people's income Questions: 1. Would demand for apartment in this area be relatively inelastic or relatively elastic? Explain 2. Would supply of apartments in this area be relatively inelastic or relatively elastic? Explain 3. Draw the demand and supply curves as you have answered in number 1 and 2. Show the initial equilibrium price and quantity. Label carefully 4. Now assume the government creates a rent supplement program. Under this program, the renter is required to pay 30% of income in rent. Any additional rent is paid by the government - up to a limit. For example, a low income person with an income of 1,000 a month would be required to pay 300 in rent (30%). If the rent is 500, the other 200 would be paid by the government. Analyze the results of this rent program. Show the changes on the graph and explain what will results. Who gains and who loses from this program? 5. Instead, now assume that the government decides to provide a building subsidy to people who build apartments in this low income area. A certain percentage of their cost will be paid by the government. Analyze the results of this program. Show the results on the graph and explain the results
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