In 2022, large increases in rent led lawmakers across the United States to consider enacting rent control laws in their states and cities. An article in the Wall Street Journal quoted Stijn Van Nieuwerburgh as saying: “Rents are exploding at a pace far faster than income. The problem is now as bad as it has ever been. And probably much worse.”

a. Draw and label a graph that depicts a demand curve and a supply curve in the market for apartments in Middletown. Assume that the market was in equilibrium in 2020 and the equilibrium rent at that time was $750 per month.

b. Refer to the graph you drew in part (a) to describe how an increase in demand would increase the equilibrium rent in Middletown to $1,200 per month.

c. Assume that the Middletown city council passes a law that limits apartment rents to $750 per month. Use your graph to explain why the law will cause a shortage of apartments in Middletown.

d. Because of the shortage of apartments, those who are not able to rent an apartment in Middletown for $750 per month will be forced to find an apartment in nearby Centertown, which has no rent control law. Draw and label a graph that depicts a demand curve and a supply curve for apartments in Centertown. Refer to your graph to describe the effect on the equilibrium rent and quantity of apartments in Centertown as a result of the rent control law in Middletown.