Question

3. Supply and Demand and Other Fundamentals: (28 points) a. Illustrate the equilibrium market for housing rentals in California and label your graph. Take up the entire space as you will need to include more details from the questions below.(6 points) b. On your graph above, make the appropriate changes as a result of an increase in building and zoning restrictions, as well as an increase in home prices. Assume a larger effect due to home prices. Label your changes (b). (6 points) C. As a result, equilibrium price will and equilibrium quantity will - (4 points) d. As a result of the effects of (b) and (c), the state of California has introduced Proposition 10 on the November 2018 ballot in order to stabilize the rental market. On your graph, illustrate the type of price control that it is attempting to implement and label it by name. (4 points) e. The effect of this government policy would be a and label it (e). (2 points) Illustrate the effect on your graph f. Why would the government's attempt to intervene in the rental market through price supports not be very effective? (3 points) g. As a result of this price control, who are the winners and who are the losers? (3 points)

Answer 1

Number of parts answered as per HOMEWORKLIB RULES.

A. Taking amount of rent on y axis and number of rental houses on x axis. D0 and S0 are the initial demand and supply curves. R0 is the equilibrium rent and Q0 is the equilibrium quantity of rental houses.

B. Increase in building and zoning restrictions will shift the supply curve backward to s1. Increase in home prices will shift the demand for rental houses rightwards because buying a house is a substitute good with respect to renting a house. Increase in home prices will thus increase demand for rental houses.

C. As a result, equilibrium price will increase to R1 and quantity will increase to q1.

D. The price control the state is trying to implement is Price Ceiling. It is put below the equilibrium price.