Micro Foundations of Real Estate Economics 5. Consider the following demand and supply data: The Demand for Apartments Point Price Quantity Rented A $1,400 80 B $1,200 100 C $1,000 120 The Supply of Apartments Point Price Quantity Rented X $1,400 120 Y $1,200 100 7 $1,000 80 (a) Graph the demand curve, labelling the three points A, B, and C. On the same diagram, graph the supply curve, labelling the three points X, Y, and Z. (7 marks) (b) Show on your graph that a price of $1,400 is NOT a market equilibrium and briefly explain your reasoning. Explain specifically what is happening at a price of $1,400? (3 marks) (c) What is the market equilibrium price and quantity? (2 marks) 6. OfficeForce, a company that sells commercial real estate, needs to increase total revenue by year-end. One strategy is to discount the price of office space in a commercial building by 3%. The research team at OfficeForce has divided its prospective customers into two groups according to their likely responses to the discount: Groups Small Businesses Government Services Percent Change in Quantity Demanded of office floor space +2% +10% (square feet) after discount (a) Calculate the price elasticities of demand for small businesses and government services. (2 marks) (b) Which business has inelastic demand? Which business has elastic demand? Explain how the discount will affect total revenue from each group. (4 marks) (c) If OfficeForce wants to increase its total revenue, should discounts be offered to small businesses or government services, to neither group, or to both groups? (2 marks)