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Suppose that in the rental market for apartment units the monthly demand by low-income (poor) consumers is given by P=1000-2Q, where Q is the number
Suppose that in the rental market for apartment units the monthly demand by low-income (poor) consumers is given by P=1000-2Q, where Q is the number of units. The marginal private cost of maintaining the units by the landlords is a constant $5 00 per unit per month. Suppose that low- income consumers are eligible for subsidized rent. Landlords renting units to low-income consumers receive a subsidy from the government of $250 per unit per month to cover the difference between the normal market rent on the units and the subsidized rent paid by the eligible poor. Using a graph with dollars on the vertical axis and Q on the horizontal axis, answer the following questions: What is the deadweight loss of the subsidy at the market equilibrium? $ Now suppose the demand for housing by the poor generates external benets to the non-poor in society. Suppose the marginal external benet curve is given by MEB=250. With the subsidy of $250 in the presence of the external benet, the deadweight loss in the market will be $ The subsidy will cost the government a total of $
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