Answer to Question #189187 in Microeconomics for Ej eunica

Question

Calculate the market equilibrium level of price and quantity for a housing unit.

Answer 1

The equilibrium, or economy, price, and quantity exist at the point where the supply and demand curves converge in a free and open market without government price controls. Consumers are willing and able to purchase the same amount that companies are willing and able to sell at this price. A shortage occurs when the price falls below this equilibrium intersection point. If the price is higher than the point, there is a surplus.

In the case of rent control for a housing unit, Rent regulation is an example of a price that is set below equilibrium. A market limit is what is referred to as this. The equilibrium (market) rental unit price is $1,800 a month in the graph below. The city council needs the rental units to cost no more than $1,000 a month so that more people can live in the city. Since vendors have little desire to build and own rental units at the cheaper price, the quantity supplied of rental units decreases to 700 units due to the lower-than-equilibrium rent. Because of the lower price, the amount requested jumps to 1,200. A shortfall of 500 rental units results as a result of this (1,200 minus 700). In addition to the shortage, the government's price cap has other ramifications. Landlords have little desire to retain rented properties due to the higher quantity requested, and they have less rental revenue due to the reduced rent. This normally results in the rental units deteriorating. Due to a scarcity of rental units in the area, demand for properties that are not subject to rent controls is on the rise. The price of non-rent-controlled assets rises as a result of this.

Reference.

https://inflateyourmind.com/macroeconomics/unit-2/section-5-equilibrium-price-and-quantity/