Republic of the Philippines

CAVITE STATE UNIVERSITY

Don Severino de las Alas Campus
Indang, Cavite
www.cvsu.edu.ph

COLLEGE OF ECONOMICS, MANAGEMENT, AND DEVELOPMENT STUDIES

BA 245
MANAGERIAL ECONOMICS

Name: Engr. Michael Darien L. Corpuz

Date: January 13, 2021
Course: MBA | Managerial Economics (BA245)
Professor: Prof. Jenny Beb Ebo

Assume there is a well-defined geographic area of a city. The area is composed

exclusively of apartments and is populated by low-income residents. The people who
live in the area tend to stay in that area because (1) they cannot afford to live in other
areas of the city, (2) they prefer to live with people of their own ethnic group, or (3)
there is discrimination against them in other areas of the city. Rents paid are a very
high percent of peoples’ incomes.

(1) Would the demand for apartments in this area be relatively inelastic or relatively elastic?
State why.
(2) Would the supply of apartments in this area be relatively inelastic or relatively elastic?
State why.
(3) Draw the demand and supply curves as you have described them, showing the initial
equilibrium price and quantity. Label carefully.
(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 P
10,000 a month would be required to pay P 3000 in rent (30%). If the rent is P 5000, the
other P 2000 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?

JENNY BEB F. EBO

(046) 4150-010 / (046) 4150-011

email: cemds.deans16@gmail.com
 Answer

1. The demand for the apartments of the area is relatively inelastic because
residents do not have any other options or if there is any, there is very few
substitutes apartments in the area. However, if the the owners of the apartment
decided to raise their prices of rent, resident may chose to leave the city.

2. The geographical area is stated that it is populated by low income residence,

meaning it is a low income residential area, the fact that is low income will make it
populated and not much space available. If any development made or an
increase in quantity it is likely to be very minimal, thus making the supply a
relatively inelastic.

3.

4. The government supplement program is considered as an increase in the

income. With the increase of income, this will affect the demand for apartments.
Increase in demand will move the line to the right and in result, the price of rent
will increase along with the supply. Since it is relatively inelastic, the quantity
change is minimal or small. The residents who rents are the ones who gain from
the supplement program. The taxpayers are the one who loses to the supplement
program.