The elected officials in a west coast university town are concerned about the "exploitative"

rents being charged to college students. The town council is contemplating the imposition of

a $350 per month rent ceiling on apartments in the city. An economist at the university

estimates the demand and supply curves as:

QD = 5600 - 8P QS = 500 + 4P,

where P = monthly rent, and Q = number of apartments available for rent. For purposes of

this analysis, apartments can be treated as identical.

a. Calculate the equilibrium price and quantity that would prevail without the price

ceiling. Calculate producer and consumer surplus at this equilibrium (sketch a diagram

showing both).

b. What quantity will eventually be available if the rent ceiling is imposed? Calculate any

gains or losses in consumer and/or producer surplus.

c. Does the proposed rent ceiling result in net welfare gains? Would you advise the town

council to implement the policy?