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The average monthly rent for a 1-bedroom apartment in San Francisco ranges from approximately $2500 to $3700, depending on the neighborhood. A rent control policy setting $2000 per month rent on apartments is being considered in San Francisco, where the demand for apartments is given by P= 5000 - Q and the supply of apartments is P= 1000 + Q. Here, P = dollars of monthly rent, and Q= number of apartments available for rent. For purposes of this analysis, apartments are treated as identical.
a. What is the current market equilibrium price and quantity before the rent control is imposed?
b. Now impose the rent control of P= $2000. Draw a market demand and supply graph and label the equilibrium price and quantity from part (a), the rent control price, and the number of apartments actually rented under the rent control policy. What is the change in consumer surplus, comparing the market equilibrium to the market with rent control? Label consumer surplus before and after rent control is imposed.
Please show your work so I may understand.
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