Question

Suppose that the government wishes to decrease the market equilibrium monthly rent by increasing the supply of housing. Assuming that demand remains unchanged, by how many units of housing would the government have to increase the supply of housing in order to get the market equilibrium rental price to fall to $1500 per month

Answer 1

If the government wants to get the market equilibrium rental price to fall to $1,500 per month, it must build as much housing as needed in order to match the supply of housing with the demand of housing that results from a rental price of $1,500 per month. Like this, both supply and demand will be equal, and the equilibrium price of $1,500 will be reached.

For example, if at $1,500 the quantity of housing demanded is 200 units, and the current housing stock is 150 units, the government will have to build 50 additional housing units in order to match supply and demand.