In the city of New York there is a well-defined geographic area or borough, called the Bronx. Bronx is composed exclusively of affordable apartments and is populated by low-income residents. The Bronx has a strong character of its own. It is the birthplace of rap or hip-hop music and home to one of the country's most famous professional baseball teams, the New York Yankees, also known as the Bronx Bombers. Many ethnic groups have called the Bronx home over the years. Unfortunately, Bronx is also known for its high crime rate.The racial makeup of the borough Bronx is 35.64 percent Black or African American, 29.87 percent White, 0.85 percent Native American, 3.01 percent Asian, 0.10 percent Pacific Islander, 24.74 percent from other races and 5.78 percent from two or more races.

The people who live in the area tend to stay there because they cannot afford to live in other areas of the city, or they prefer to live with people of their own ethnic group or there is discrimination against them in other areas of the city. However, rents paid are a very high percentage of peoples's incomes.Let us assume that the government is contemplating between two policies regarding rents in this area:The first is creating a rent supplement programme for the residents. Under this programme the renter is required to pay 30% of his 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 $1000 a month, would be required to pay $300 in rent (that is 30% of his income). If the rent is $500, then the other $200 would be paid by the government.The second is that the government decides to provide a building subsidy to construction firms who build apartments in this low-income area. A certain percent of their costs will be paid by the government.

Read the above case and answer the questions below.

All questions carry 5 marks each.

a. Would the demand for and supply of apartments in this area be relatively inelastic or relatively elastic? State why. Draw the demand and supply curve as you have descried them and identify the market equilibrium price and quantity with the help of a well-labelled diagram.

b. If the government wants to implement the first policy, of creating a rent supplement programme for the residents, show the changes in the demand and supply curves, if any (with the help of a well-labelled diagram, drawn by hand) and analyse its outcome. Who will gain and who will lose from this policy?

c. If the government wants to implement the second policy, of providing a building subsidy to construction firms who build apartments in this low-income area, show the changes in the demand and supply cures, if any (with the help of a well-labelled diagram, drawn by hand) and analyse its outcome. Who will gain from this policy?