ThecityofMagicallandhasdecidedto

imposeapricefloorof$300onapartmentrentals throughout the country in order to ensure a minimum return to landlords or owners of rental

property. The demand curve for apartment rentals is

QD = 4000-5p, while the corresponding

supply curve is QS = 20p

. (Remember that a price floor is a regulation that makes it illegal to

trade at a price lower than the specified level).

a) What is the equilibrium price and quantity in the absence of any price floor? Illustrate your

answer using a graph.

b) Does the price floor result in any change to consumer and producer surplus? Identify the

exact amount of change in consumer and producer surplus. Identify the old and new consumer

and producer surplus on y

our graph (from part a).

c) Are consumers and producers better off? Why