The rent control agency of New York City has found

that aggregate demand is QD = 160 - 8P. Quantity

is measured in tens of thousands of apartments. Price,

the average monthly rental rate, is measured in hun

dreds of dollars. The agency also noted that the in

crease in Q at lower P results from more three-person

families coming into the city from Long Island and

demanding apartments. The city's board of realtors

acknowledges that this is a good demand estimate and

has shown that supply is QS = 70 + 7P.

a. If both the agency and the board are right about

demand and supply, what is the free-market price?

What is the change in city population if the agency

sets a maximum average monthly rent of $300 and

all those who cannot find an apartment leave the

city?

b. Suppose the agency bows to the wishes of the

board and sets a rental of $900 per month on all

apartments to allow landlords a "fair" rate of re

turn. If 50 percent of any long-run increases in

apartment offerings comes from new construction,

how many apartments are constructed?