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Consider the following diagram of a market for one-bedroom rental apartments in a college community.

a. At a rental rate of \(1,000 per month, is there an excess quantity supplied, or is there an excess quantity demanded? What is the amount of the excess quantity supplied or demanded?

b.If the present rental rate of one-bedroom apartments is\)1,000 per month, through what mechanism will the rental rate adjust to the equilibrium rental rate of\(800?

c.At a rental rate of\)600 per month, is there an excess quantity supplied, or is there an excess quantity demanded? What is the amount of the excess quantity supplied or demanded?

d.If the present rental rate of one-bedroom apartments is \(600 per month, through what mechanism will the rental rate adjust to the equilibrium rental rate of\)800?

Step by step solution

01

Step1. Introduction

Equilibrium is determined by the intersection of supply and demand.

Excess supply is when price is higher than the market clearing price.

Excess demand is when price is lower than the market clearing price.

02

Step2. Explanation

a. Excess supply at $1000, 1500

b. Since there is excess supply, suppliers would clear the stock at lower prices as well, so the price would adjust to equilibrium price.

c. Excess demand at $600, 1500

d. Since there is excess demand, consumers would purchase the goods at even higher prices, so the price would adjust to equilibrium price.

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