Affordable housing has become one of the most important policy questions facing all levels of government. Some proponents have recommended setting limits to rent for apartment units in major urban areas. This policy would benefit low-income households by ensuring maximum limits to monthly rental prices. As a policy maker you are interested in the welfare effects of this initiative and want to use

some economic methods to evaluate the benefits and costs of this proposed policy.

1. Draw a simple supply and demand diagram that clearly denotes the competitive equilibrium and therefore, the price and quantity of sales before the policy. You are free to assume a downward sloping demand curve and an upward sloping supply curve. As always, the vertical axis should denote price and the horizontal axis quantity.