Use Supply and Demand to Evaluate Events

Before getting to discuss equilibrium of demand and supply, we must first take a good look at terms that are pertinent to this assignment. The terms include demand, supply, their equilibrium and price ceiling. Demand is the extent to which a commodity or a service is required in the market by the buyers in order to accomplish their satisfaction towards it at a certain period. The demand in the market, accompanied by its price tag, broadly dictates the willingness to pay. When a product or a service is in the highest demand, a high price tag is imposed on the same. It becomes a big task to get that particular product easily. In our case, the county council of Prescott assumed to have brought down the prices of the rental units would cause the demand to rise tremendously. This will bring about a scramble for rental units by the residents of the Prescott city council. This will be due to the continued demand for the rental units. In economics, it is evident that every consumer will require the best or the highest quality commodity or service at the lowest price. The city council of Prescott requires the price to be low, and thus all is contained in the paper. Demand has a relationship with the supply of goods and services in the market. Demand has a connection with supply since any time demand is high, supply is usually relatively low.

Supply, on the other hand, represents what the market can offer to the buyers and sellers. To some point, the supply in the market affects the demand so much. This is because whenever the market has a big supply of the goods and services offered to it, the demand becomes very low. This lowers the price of the involved commodities. An increased supply of goods and services may bring about forgoing of a certain good, which is of higher price and consider a low one since the supply is very high. This is mostly witnessed when dealing with substitute commodities. In this context, it does not mean that rental units are of a higher count but the lowering of the price from the equilibrium price. (A.G.A, 1993- 2010)

Equilibrium is attained at the point through which demand equals the supply of the goods and services in the market. Since demand and supply depend on each other, there is no way through which they can be parallel. The point at which the two curves intersect is called the equilibrium. At this point of the market, we find the most appropriate state to make transactions in the market since there is stability and no fluctuation of prices. Demonstrated in the demand/ supply curve at the equilibrium price of the quantity in the market. (A.G.A, 1993- 2010)

Price ceilings and price floors are government intervention tools to control the prices in the market. To start with, price ceilings are set by the government to allow for a limit on the price of a certain good or service. This may be due to imposed subsidies or thought by the government that some commodities are sold unfairly to consumers. Since they operate in the market, an issue comes when they are set below the equilibrium price. This records an excess demand to the market or surplus produce in the market. Shortage in supply is also brought about by the will extremely cause casualties to the producers. The consumers will be affected by queuing up for commodities, and rationing by the government may hit them as well. In our case, Prescott city council imposed price ceilings of the rental units at 16 is below the equilibrium price. Its impacts are perceived below in a wider view. (Marques, C. R., Martins, F., & Portugal, P. 2010)

To control the low price of goods and services delivered than expected by the market, the government imposes contrary price floors. This government intervention helps the producers since they may be producing much but, on the other hand, not making good profits as expected by the government.

In assumption, for the city council of Prescott to implement the price ceilings on rental units, the unit price will be based on the number of bedrooms in the unit. Considering the demand function is Qd= 120 -4p and the supply function is Q = 2p. In this case, p is the price and q is the quantity demanded or the quantity supplied. The county council of Prescott imposed the price ceiling at 16, which is the maximum. There are many impacts brought up by the demand and the supply in creating a demand curve above. (A.G.A, 1993- 2010)

At equilibrium, the quantity demanded equals the quantity supplied. The equilibrium price and quantity solution is as shown below.

Q = 120 -4p      demand function

Q = 2p supply function

At equilibrium Qd = Qs

120 – 4p = 2p

120 = 6p

P = 20

Q = 2p

Q = 40

Prescott city council imposing a price ceiling of p= 16 will translate into excess demand. As stated above, this will be the city’s intervention in improving the consumer’s life by making it cheaper and affordable. Below the equilibrium price, if a price ceiling is ordered, the residents of Prescott city will demand the rental units more than they did before since the equilibrium price was p = 20.

Are consumers of rental-housing in Prescott well-served by this price ceiling policy? Provide a careful economic analysis in support of your claim.

The consumers, or rather residents of Prescott city, will be favored by the policy since they can have the houses rented at a lower price. My claim in support of this analysis is that when the price is set at the price which is below the equilibrium price, what we get is excess demand. Rather if they are normal goods, what is expected is scarce commodities and uncertainties due to demand. The consumers are well served by the policy of the Prescott city council.

Suppose that the Council is concerned that landlords will allow the quality of their rental units to deteriorate following the imposition of the ceiling price. What can you infer about the level of quality that landlords provision if consumers are worse off following the imposition of the ceiling price? Provide a careful economic analysis in support of your claim.

A step taken against the property owner to improve their rental units will not work since, following economics, we find that each consumer demands a good or service at the lowest price and of high value. Since the rent is below the equilibrium price, then property owners will supply less in improving the quality of the houses to the tenants’ body in Prescott city. This is because their rental units will not be in a position to motivate them since they are experiencing relatively very low returns (rent). (Marques, C. R., Martins, F., & Portugal, P. 2010)

Suppose now that the proposal before the City Council contemplates imposing a price ceiling on apartment rentals but not on house rentals. Would owners of rental houses in Manhattan be likely to support this proposal, or would they prefer the status quo (i.e., no price ceilings)? Provide the economic rationale for your answer. (In answering this question, you should ignore all supply-side considerations. In other words, just assume that supply adjusts fully to accommodate demand).

Owners of rentals in Manhattan would not support the idea of a price ceiling on apartment rentals. When the house owners put the price ceilings under the equilibrium price, the income receivable will go down at a high rate. By imposing the price ceiling on the apartment, it means the rent will go down/below the equilibrium price and hence tenants can easily afford it. This means that they will shift from low rentals to apartments. The owners of the house rentals will lose customers since they are demanding quality houses at a lower rent.

The proposal to increase the minimum wage in the U.S. below is discussed with regard to the demand, supply and imposing of price floors. As viewed in various articles about increasing the real wage of the workers in the U.S., it is literary known that a mare worker in the United States of America gets a minimum wage of 7.25 dollars per hour or the California rate, which is 8 dollars per hour. It is relatively low since the living standards are high compared to the real minimum wage they get when working. If the workers have low income from their wages, the market will go down due to the low purchasing power, they will have attained. Concisely the supply will remain the same as it has been in the market. If the government sets the floor of the minimum wage to be higher than the equilibrium minimum wage will affect the employers so much. This is because when the minimum wage is set above the equilibrium, there will be excess supply. On the contrary, if it is set below the equilibrium, there will be an excess demand since the employers will have scarcity when it comes to employees because no one will be willing to work at a low wage. Price floors will cause excess supply and demand when put above and below equilibrium, respectively. (Marques, C. R., Martins, F., & Portugal, P. 2010)

References

A.G.A. Gas Supply and Demand Committee. & American Gas Association. (1993). demand and supply outlook, 1993-2010: A report of the A.G.A. Gas Supply and Demand Committee. Arlington, Va: American Gas Association.

Ariga, K., Matsui, K., Watanabe, M., & Australia-Japan Research Centre. (2001). Hot and spicy: Ups and downs on the price floor and ceiling at Japanese supermarkets. Canberra: Australia-Japan Research Centre.

Marques, C. R., Martins, F., & Portugal, P. (2010). Price and wage formation in Portugal. Frankfurt am Main: European Central Bank.

ORDER A PLAGIARISM-FREE PAPER HERE

We’ll write everything from scratch

---

Week 2 – Assignment: Use Supply and Demand to Evaluate Events

Instructions

Assume that the City Council in Prescott, AZ is considering implementing price ceilings on rental units based on the number of bedrooms in the unit. The demand function for rental units (on a single bedroom equivalent basis) is given by Q_D = 120 – 4P and the supply function is given by Q_S = 2P, where P is price and Q is quantity. The Council is giving consideration to imposing a ceiling price on rental units of P_max = 16.

1. Using the given functions, draw a corresponding demand curve and a supply curve. Properly label the equilibrium price and quantity. Then show what will happen to equilibrium if the City Council imposes a price ceiling at 16. (There are numerous guides online that demonstrate how to draw supply and demand curves; most are done in Excel and then you can copy and paste the graph into your word document where you will write out answers to the following questions).
2. Are consumers of rental-housing in Prescott well-served by this price ceiling policy? Provide a careful economic analysis in support of your claim.
3. Suppose that the Council is concerned that landlords will allow the quality of their rental units to deteriorate following the imposition of the ceiling price. What can you infer about the level of quality that landlords provision if consumers are worse off following the imposition of the ceiling price? Provide a careful economic analysis in support of your claim.
4. Suppose now that the proposal before the City Council contemplates imposing a price ceiling on apartment rentals but not on house rentals. Would owners of rental houses in Manhattan be likely to support this proposal, or would they prefer the status quo (i.e., no price ceilings)? Provide the economic rationale for your answer. (In answering this question, you should ignore all supply-side considerations. In other words, just assume that supply adjusts fully to accommodate demand).

Next, find 2 recent scholarly articles concerning proposals to increase the minimum wage in the U.S.  Using a supply, demand and, in this case, price floor analysis similar to what you did for the rental unit price ceiling, write a 1-2 page analysis, based on sound economic principles, of the proposal.

Note: To create supply and demand curves, solve for equilibrium and discuss what happens if a regulated price is set that is not equal to the equilibrium price.

To create the demand curves that you need for this assignment, create an excel file with a price column including prices from $1 to $30. Using the formulas, then compute quantity demanded for each price and quantity supplied for each price. Finally, using the links above, create the graph.

Length: 3-5 pages not including title page and references

Your response should demonstrate thoughtful consideration of the ideas and concepts presented in the course and provide new thoughts and insights relating directly to this topic. Your response should reflect scholarly writing and current APA standards.