Assume an area is composed exclusively of apartments and populated by low-income residents. The people live 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. i. Would the demand for apartments be relatively inelastic or relatively elastic? State why. ii. Would the supply of apartments in this area be relatively inelastic or relatively elastic? State why. iii. Draw the demand and supply curves, showing the first equilibrium price and quantity. iv. Assume the state creates a rent supplement program where the renter is required to pay 30% Of income in rent. Any more rent is paid by the state to a limit. If the rent is C500, the other C200 would be paid by the state. Analyze the results and Show the changes on the graph. Who gains and who loses from this program?

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Assume an area is composed exclusively of apartments and populated by
low-income residents. The people live 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.

i. Would the demand for apartments be relatively inelastic or
relatively elastic? State why. ii. Would the supply of apartments in
this area be relatively inelastic or relatively elastic? State why.
iii. Draw the demand and supply curves, showing the first equilibrium
price and quantity. iv. Assume the state creates a rent supplement
program where the renter is required to pay 30% Of income in rent. Any
more rent is paid by the state to a limit. If the rent is C500, the
other C200 would be paid by the state. Analyze the results and Show
the changes on the graph. Who gains and who loses from this program?

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