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Think about the rental market in your town. Draw a supply-and-demand graph for two-bedroom apartments showing...

Think about the rental market in your town. Draw a supply-and-demand graph for two-bedroom apartments showing what you believe the equilibrium rental rate is. The city council is accusing landlords of taking advantage of students and thus places a price ceiling below the equilibrium price. Does this create a shortage? Identify the winners and losers of this government policy.

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Answer #1

Here, the equilibrium in the market was initially at A. At the price of $100 and quantity Q. After the price ceiling at $75 the demand increased to C and the supply deceased to B. This will create a shortage in the market equivalent to BC. The price of the remaining flats at a lower supply will increase to $125, only the existing renters will be the winner and the flat owners and the people who cannot get a flat will be the looser.

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