Question

Joe is a landlord of a small apartment building in the downtown district. He usually charges $3,000 per month for his apartments. The local government just passed a law stating that all rent in the downtown district must be at or below $2,600 per month. After this policy is implemented, what will be the effect on supply of apartments and demand of apartments in the downtown district?
Supply down, demand up


Supply down, demand down


Supply up, demand down


Supply up, demand up

Answer 1

When the new law is passed, the effect on the supply and demand of apartments is that Supply down, demand up.

What happens when a price ceiling is below the equilibrium?

When the equilibrium price which is $3,000 in this case, is higher than the price ceiling of $2,600 in this case, more people will demand apartments because they will be more likely to afford it.

Supply on the other hand, will decrease because less people will want to make their places available at below equilibrium price.

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Answer 2

The effect on supply of apartments is that supply will be down and the demand of apartments in the downtown district will be up.

What affects demand for housing?

The primary factor affecting the demand for housing is usually the price of housing.

Using the law of demand, as price decreases, the amount or the quantity of housing in terms of quantity demanded will go up or increases.

Note that because of a drop in price, more people may need more housing and as such the quantity supplied will not be able to meet up with the demand and another factor is that some homeowners may want to hold off in  leasing apartment at that low price.

Therefore, option A is correct.

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