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# ECONOMICS ASSIGNMENT

(1) Would the demand for apartments in this area be relatively inelastic or relatively
elastic? State why?

Answer: The demand for apartments would be relatively inelastic because there are few
or no substitutes for the apartments in this area.

(2) Would the supply of apartments in this area be relatively inelastic or relatively
elastic? State why?

Answer: The supply would also be relatively inelastic. Given that this is a middle-income
area and that there is probably not much free land available, it is likely that the quantity
supplied would increase only a little.
(3) Draw the demand and supply curves as you have described them, showing the initial
equilibrium price and quantity. Label carefully.

Both demand and supply should be drawn as steep (unless you argued that demand was
relatively elastic).

## Demand is Relatively inelastic means that relatively large changes in price

cause relatively small changes in quantity. In other words, quantity is not very responsive to
price.

Supply Relatively inelastic means that relatively large changes in price cause relatively small
changes in quantity. In other words, quantity is not very responsive to price.
Demand Supply Equilibrium

When the supply and demand curves intersect, the market is in equilibrium. This is where the
quantity demanded and quantity supplied are equal.

(4) Now assume the government creates a rent supplement program. Under this program, the
renter is required to pay 30% of income in rent. Any additional rent is paid by the
government --- up to a limit. For example, a low-income person with an income of
\$1,000 a month would be required to pay \$300 in rent (30%). If the rent is \$500, the other
\$200 would be paid by the government. Analyze the results of this program. Show the
changes on the graph and explain what will result. Who gains and who loses from this
program?

Answer: The payment by the government can be treated as an increase in income. This
affects the demand for apartments. An increase in demand would be shown as a shift to
the right. This creates a shortage of apartments. As a result, rents rise. The quantity of
apartments supplied also rises. If the supply is indeed relatively inelastic, the quantity
supplied rises very little. The major effect is the rise in rents. Renters gain from the
program. But most of the gain goes to the owners of the apartments. This is not what was
intended. The "losers" are the taxpayers who pay for the program.

(5) Instead, assume that the government decides to provide a building subsidy to people who
build apartments in this low-income area. A certain percent of their costs will be paid by
the government. Analyze the results of this program. Show the results on the graph and
explain what will result.

Answer: The subsidy program is a decrease in costs of production. With lower costs of
production, supply increases (shifts to the right). This creates a surplus, causing apartment
owners to lower the rents. The quantity of apartments supplied increases. If demand is
relatively inelastic, the largest effect is the reduction in rents. The quantity supplied increases
only a little. Renters and apartment owners gain from the program. But in this case, renters
gain the most.

Question 2: Assume that a Japanese car and a similar American car each sell in the United
States at a price of \$40,000. A tariff is a tax placed on the products of foreign countries sold in
the United States. Assume, there is a 13% tax on foreign-made automobiles.
Required:
Construct a scenario analysis of Demand for Automobiles in both countries and explain who
would bear the incidence of this tax? State the reason(s) in the contexts of price elasticity,
substitution effect and income effect concepts.
Before the vitality emergencies of the 1970s, the U.S. automobile industry comprised of the Big
Three (GM, Ford, and Chrysler) in addition to one (American Motors). While value rivalry was
verboten, these organizations were savagely aggressive in the region of item separation. Each

Assume that purchasers' livelihoods go up. Accepting that automobiles are an ordinary decent,
request would increment. The outline proposes that both cost and amount would increment,
ceteris paribus. Is this not what might be normal. Would not an expansion in family unit wages
prompt an expansion in the interest for a wide range of autos? Couldn't all auto makes suspect
higher deals. Sixty years prior there was a work stoppage in the creation of a key contribution to
automobile producing, steel. How did this effect the auto showcase? Will free market activity
offer assistance? With no new steel being delivered, expenses to car producers expanded. This
would (1) (increase/diminish) the supply of autos. For this situation, free market activity would
foresee (2) (a decline/no change/an expansion) in the cost of autos and (3)(a lessening/no
change/an increment) in the level of offers. Around then, the level of offers positively dropped
and auto cost increments outpaced those of costs as a rule.
With the finish of modest gas in the United States amid the 1970s, remote rivalry did to the Big
Three what the antitrust young men couldn't do. To such an extent that Toyota, Honda, and
Nissan are oft alluded to as the Big Three.
Since gas is a (4)(complement to/substitute for) a vehicle, we would typically expect an
expansion in its cost to (5)(reduce/increment) the interest for an auto. In spite of the fact that hard
to observe, there is undoubtedly this impact was available in the auto advertise. The now higher
cost of the "huge auto bundle" drove purchasers to the lower estimated "little auto bundle." For
the automobiles themselves, this brought about an expansion sought after for imports and a
diminishing in the interest for domestics.
Customers will bear the tax when they will purchase it. Demand is relatively inelastic. If
substitution of these small cars of USA built will be available, then customers wont go for
Japanese cars. Customers income is also vital from the pricing of cars. If price is high and
income doesnt increase, then customers wont buy these cars with higher tax.

Reference

1. staffwww.fullcoll.edu/fchan/Micro/1MKTEQUIL.htm