Question

A large city in the Eastern US is plagued with higher and higher rents. The average rent in the largest rental neighborhood is $2,000 per month. This neighborhood largely serves new residents to the city, mostly immigrants. Most of these residents cannot afford these rents, so the local government has determined that it will initiate a “price ceiling” or “rent control ceiling” at $1500. In other words, there are to be no rents above $1500 in this neighborhood. Given this information, answer the following questions:

1. Explain the likely market effects of this rent control strategy, using illustrative supply and demand curves with the numbers mentioned above. Must include graph ( no number)

Explanation must be one paragraph long. The explain mus be and persistent.

Answer 1

If the government uses the price ceiling, then the demand must be an increase (Qd). Moreover, the supply should be reduced because of the low rents (Qs). Also, the equilibrium of demand and supply will not be achieved. The marginal benefit from the supply renting house will be reduced. Based on the law of demand and supply, the demand increases due to the low rent set by the government. Look at the diagram,