Modeling the apartment Market How are apartment rents determined? Suppose apartments are close or distant, but otherwise identical distant apartments rents are exogenous and known many potential renters and landlords
Modeling the Apartment Market How are apartment rents determined? Suppose – apartments are close or distant, but otherwise identical –distant apartments rents are exogenous and known –many potential renters and landlords
Modeling the apartment Market Who will rent close apartments? At what price? Will the allocation of apartments be desirable in any sense? How can we construct an insightful model to answer these questions?
Modeling the Apartment Market Who will rent close apartments? At what price? Will the allocation of apartments be desirable in any sense? How can we construct an insightful model to answer these questions?
Two Principles in economics Optimization: Each person tries to choose the best alternative available to him or her Equilibrium: Market price adjusts until quantity demanded equals quantity supplied
Two Principles in Economics Optimization: Each person tries to choose the best alternative available to him or her. Equilibrium: Market price adjusts until quantity demanded equals quantity supplied
Modeling Apartment Demand Demand: Suppose the most any one person is willing to pay to rent a close apartment is $500 /month Then $500→Q〓1. Suppose the price has to drop to $490 before a 2nd person would rent Then $490→Q=2
Modeling Apartment Demand Demand: Suppose the most any one person is willing to pay to rent a close apartment is $500/month. Then p = $500 QD = 1. Suppose the price has to drop to $490 before a 2nd person would rent. Then p = $490 QD = 2
Modeling Apartment Demand The lower is the rental rate p, the larger is the quantity of close apartments demanded p→Q个 The quantity demanded vs price graph is the market demand curve for close apartments
Modeling Apartment Demand The lower is the rental rate p, the larger is the quantity of close apartments demanded p QD . The quantity demanded vs. price graph is the market demand curve for close apartments