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Question 4 (15 points) In Chicago, the market for rental units is competitive. Typically, the demand for 2 BR rentals is QD = 3 P where demand is in million of units and P is monthly rent in thousands of dollars (hence, when P = 1 the monthly rent is $1,000). The short run supply of 2 BR rentals is Q5 = 0.5P. a) Find the equilibrium monthly rent and the equilibrium number of rental units and illustrate it in a graph. Make sure you label all curves and important points in your graph. A crippling recession sharply reduces households' income and lowers the demand for 2 BR rentals to (23) = 1.8 P. Government decides to support the rental housing market and introduces a ll-in-the-gap program. On every rented unit, government pays landlords the difference between the market monthly rent and 351,800. b) How does the fill-in-thegap program affect the market monthly rent? Keep in mind that demand for rental units is now Q'D = 1.8 P. c) What is the cost of the program (to government)? The Chicagoan Tenant Association upset that payments are made to landlords suggests to substitute the ll-inthe-gap program with a subsidy program that would pay renter households $1,200 per month. Keep in mind that this is a per unit subsidy paid to 'buyers' in the market for rental units. d) Should the Landlords Association of Chicago support this proposal? Clearly justify your