Question 1: The market for beach-front rental properties has exactly 5000 units for rent. Each unit is identical, and the owners face no costs to rent the units (and don't pay taxes or need to maintain the units).

a) If the demand for beach-front rentals is ! = 15000 10, what is the equilibrium price and quantity of beach-front rentals?

b) What are the consumer and producer surplus in this market? Plot and label the supply and demand curves. Shade and label the area that corresponds to consumer surplus.

c) A storm destroys 12 of the beach-front rentals. What is the new equilibrium price and

quantity?

d) Because the destroyed units were insured, it doesn't cost the owners anything to

rebuild. However, if they want to rent the units out, they need to pay $500 each to get a rental inspection from the local homeowner's association (HOA). For these new units, it's obviously not worth renting if their owners can't rent for at least $500 per unit. Plot the demand and supply curves that correspond to this new market. What's the new equilibrium price and quantity? Shade the area that corresponds to producer surplus. Is producer surplus higher, lower, or the same as in part b?