Question

Draw a correctly labeled graph of a housing market in equilibrium. On your graph, illustrate an effective legal limit (ceiling) on rent. Identify the quantity of housing demanded, the quantity of housing supplied, and the size of the resulting surplus or shortage.

Answer 1

In the first picture I uploaded, I show the housing market equilibrium without any effective legal ceilings on rent. In this equilibrium, the quantity demanded and the quantity supply reach an equilibrum of 70, at a price of $1,100 per rent.

In the second picture I uploaded, we can see the price ceiling in red. The price ceiling does not allow the rent to reach equilibrium, which causes a demand of eighty houses, but a supply of sixty houses, leading to a housing shortage of 20 houses.