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Setup: Trine owns an apartment in Copenhagen. She is willing to rent it out at any positive price. Peter and Simon lives together and are both students. They will like to rent the apartment for less than 8000 kr. (danish valuta). If the rent is over 8000 kr., they will stay in their current apartment. Amalie just got a job at a bank. She is willing to pay 12,000 kr. for the apartment. Besides Peter and Simon doesn't know each other.

A)Ignore everyone else in the world: Which allocation will the three parties reach? (hint: there are more!)

my answer

First of all, I'm not sure what a positive price is.

Case 1: Rent it to Simon and Peter. Case 2: Rent it Amailie. Case 3: None of them. (Trine does not get a positive price)

Question 1: I'm not sure why Trine would rent it to Simon and Peter if she can get more rent in she rented to Amailie.

B) Can you argue that the allocation in A) is not optimal from one society point of view (hint: there is no clear answer. Be creative)?

My answer

Case 1 This will have some negative consequences for Trine (??).

Case 2 will not be optimal, because two student might not be in a optimal state and therefore might dropout. Case 3: Only the richest or most desperate will pay this high price. What it will mean for the society I'm not sure.

This is my first economic problem. Feedback, improvement, alternatives solutions and reasoning, and pinpointing of mistakes will be appreciated.

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  • $\begingroup$ Positive price is any price above zero $p>0$. Also your post is written in a convoluted and inconsistent way. I am not even 100% sure what exactly is the question maybe consider to rewrite the post in more clear way if you want to get some good responses $\endgroup$ – 1muflon1 Nov 14 at 23:05
  • $\begingroup$ Since none of the three know each other, there is no guarantee that all of them would meet and know each other's preferences. Imagine what would happen if Trine only meets Peter and Simon, not knowing that Amalie is also looking? The question also suggests that there might be multiple answers to this. Not sure about Q2 though. $\endgroup$ – Art Nov 15 at 2:44

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