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Heat Included? Should landlords or tenants pay for heat? If landlords pay for heat, they pay $100 for heat and $600 in other costs. In this case, tenants get $1000 value from the apartment (minus rent). If tenants pay for their own heat, they'd heat apartment less and get only $980 value and pay $60 for heat. The landlord now only pays the $600 in costs.
a) If the competitive price of rent with heat included is $850, what is the tenant's net benefit from the apartment? What is the landlord's net benefit from the apartment?
b) If the competitive price of rent with no heat included is $760, what is the tenant's net benefit from such an apartment? What is the landlord's net benefit from such an apartment?
c) Does a law requiring landlords to pay for heat improve efficiency?
d) If tenants and landlords were to vote on such a law, what would be the outcome? Does it matter if they vote "ex-ante" (before they know if they're landlords or tenants) or "ex-post" (after they know)? Explain briefly.
Assume that the market for sriracha sauce can be represented by the following supply and demand equations:
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