Philip’s demand curve for housing is shown in the following figure. (Assume that quantity of housing is measured simply by the number of square feet. Other aspects of quality are ignored.) The market price of housing is P 1 ; Philip can purchase as much housing as he desires at that price. Alternatively, Philip can live in public housing for a price of P 2 per square foot, but the only apartment available to him has H 2 square feet.

Will Philip choose public housing or rent on the private market? Explain carefully. [Hint:
Compare consumer surplus (see the appendix to the book) under both possibilities.]

Transcribed Image Text:

P P Price per square foot H Square feet per year