Part II:

Please explain this question

Assume that New York City's economy has made a comeback. That and other trends have resulted in

more rich people and more extremely rich people in New York City. However, assume that at the same

time income inequality has increased so much that people at the very bottom become worse off. If you

decide to make any assumptions in order to answer the questions, make sure that your assumptions are

reasonable and noted in your answers. Discuss changes in price and quantity.

1. What has the booming economy done to the market for renting apartments in NYC? (Ignore the

market for other kinds of housing.) Illustrate in a supply and demand diagrams from before the boom

(= initial state) to during the boom (= final state). Explain in words what effect the boom had and

why.

2. Remember that with a supply and demand analysis, the product being analyzed can be defined with

many levels of aggregation. Now disaggregate the market for renting apartments and consider the

effects of the booming economy markets on luxury apartments and on "bare bones" apartments

2

separately. (Assume there are also middle range apartments but ignore them in your analysis.) For

now, consider just the direct effects of the NYC economy on each. Illustrate in two side-by-side

supply-and-demand diagrams (one for luxury, one for bare bones) and explain in words.

3. Now consider how the two real estate markets - luxury apartments and bare bones apartments -

interact. Given what you found about how prices change in problem 2, how do you think landlords

will react and what will happen to the supply of rental housing in each market? Again, illustrate in

two side-by-side supply-and-demand diagrams and explain in words.

4. Now consider the labor market for cleaners and other who work in service for the rich. How will that

labor market have been affected by the growing ranks of the very wealthy in NYC? Describe in

words and illustrate in a supply-and-demand diagram for service labor, both before (= initial state)

and during the boom (= final state).

5. Now consider how the effects of the service labor market have affected the market for bare bones

apartments. Illustrate in a supply-and-demand diagram and explain in words.

6. Illustrate in a composite diagram for the market for bare bones apartments, the combined effects of

(2), (3) and (5), showing both before (= initial state) and during the boom (= final state). Explain your

diagram in words.