Economics

Principles of Microeconomics – ECON 200
Name Online Assignment 1 Due: 10/05/2020

(Please type your answers, to dray graphs use Excel spreadsheet or manually with a pen on a paper and copy and paste).
1. Salmiya area in Kuwait is a prime location in for living, social life and entertainment. A significant proportion of the public finds Salmiya location to be very attractive as it represents modern life and along with other amities such as malls and beach. On the other hand, the real estate developers it is a better investment location not only it gives them better return in terms of rent and property value appreciation. In order to understand the demand and supply of rental apartments, you are decided to do a real estate market analysis and gathered data on two bedroom apartments in Salmiya.
Table 1 below consists of price, quantity demanded and quantity supplied for two bedroom rental apartments in Salmiya.
Points P QD QS
A 200 3,000 1,600
B 250 2,800 1,800
C 300 2,600 2,000
D 350 2,400 2,200
E 400 2,200 2,400
F 450 2,000 2,600
G 550 1,800 2,800
H 650 1,600 3,000
a. Draw a demand and supply curve (in the same graph) and find the equilibrium price and quantity. (15 points)
b. Considering the real estate market has been hit hard as a result of Coronavirus pandemic, the real estate property owners decided to offer 25% reduction on rents. Find the new equilibrium price (rent) and quantity for two bedroom apartments. (10 points)
c. Refer to table 1, using the midpoint method, calculate the price elasticity of demand from point B to C and G to H. (10 points)
d. Discuss the elasticity values between those two points (elastic, inelastic, or unit elastic). (5 points)
e. Why do the elasticity of demand values tends to change as we move down the demand curve? (5 points)

2. The equation for a supply curve is P = 2Q – 46. Using the midpoint method, estimate the price elasticity of supply as the price increase from 2 to 6? (10 points)

3. Tenants often times complain about higher rent and arbitrary increase in rent after a 5 year contract is over. Many times the governments prefer to stay away from landlord and tenants issues as it is private business and assuming real estate market is capable enough to maximize social welfare or total surplus. Assume that Abdulla who is planning to contest in the upcoming Municipal (Baladiya) election is campaigning and promised the voters if he wins in the election he will try to solve the rental issues by two ways. First, he will try to introduce a rent control mechanism where the maximum rent for a two bedrooms apartment in Hawalli directorate will be 275KD. Failing the first proposal, he will work to introduce 50KD monthly tax on landlords or real estate owners and distribute the tax revenue among all the tenants.
Refer Table 1 values (before the 25% discount was offered) and answer the following questions under two proposals;
Consider the first proposal only;
a. Proposed 275KD rent control, is it a binding or none-binding price ceiling or price floor? Explain your answer. (5 points)
b. How does the 275KD rent control affect quantity demanded and quantity supplied? (5 points)
Consider the second proposal only;
Refer to table 1 and draw the demand and supply curve (or copy the previous graph) and draw the new supply curve based on Mr. Abdulla’s proposal on 50KD tax in landlords and real estate owners. (10 points)
c. How much rent the tenants will pay after the tax? (5 points)

d. How much is the tenant’s contribution of the tax? (5 points)

e. How much is the landlord’s and real estate owners’ contribution of the tax? (5 points)

f. How much tax revenue the government will collects from rental two bedrooms apartment properties? (5 points)

g. If the tax revenue is distributed among all the tenants, how much is the real rent (rent – per apartment tax revenue) a tenant would pay? (5 points)

4. Refer to question 3 and if you are a tenant, which of the two proposals you would support. Giving reasons, critically evaluate your proposal. (15 points)