Question

Downtown housing market City officials are devising two alternative policies to reduce the risk of eviction for families living downtown, where rent has increased precipitously. One proposed policy is to divert housing demand away by building low-income apartments in the surrounding arca. The other proposed policy is to subsidize the development of low-income apartments within the downtown arca. For simplicity, aume that these are two bedroom apartments that have all the same attributes and that the scope of the supply and demand curves do not change The line PO in the diagram shows the current rent. The objective of any policy is to lower the rent to PI while minimizing the impact on the quantity of apartments available. Show the optimal policy impact on the graph by shifting cither the supply or demand curve. Which curve is more clastic In this case, the best policy decision is to supply inst a rent control mandating the above PO bidire development within the downtown are O demand build apartments in the w unding area OO commanding that relay in or the PL 1er to une service DESK 8:54 PM ^Col* 2/9/2020

Answer 1

1.

Demand curve is more elastic

2.

Build apartments in the surrounding area

Reason: The best way to lower down the price without impacting the quantity of apartments much, is to build apartments in the surrounding area. This would shift the supply curve of apartments to the right, shifting the price of apartments down to P1.