Although adjustment to the equilibrium may take a long time in a stock-flow housing model, adjustment is fast under some circumstances, which makes for an easy analysis. This problem considers such a case and illustrates the effect of rent control. Suppose that the initial demand curve for housing is given by p = 3 H, where p is the rental price per square foot of housing and H is the size of the stock in square feet. Note that this equation gives the height up to the demand curve at any H. The flow supply curve for housing is given by p =H + 2, where H is the change in the stock. Again, this equation gives the height up to the flow supply curve at any value of H. Note that the slopes of the two curves are 1 and

1, respectively, a fact that allows simple answers to be derived below. .

(a) Compute the equilibrium price p_e (the price at which H = 0).

(b) Suppose that prior to the demand shock, the housing market is in equilibrium, with a stock of size H = 1. Verify that the price in the market equals p_e when the stock is this size.

After the demand shock (e.g., arrival of the Cuban refugees), demand increases to p = 8 H.

(c) With the new higher demand, the price in the market shoots up to a higher value, denoted by p'. Compute p'.

(d) Next, compute the change in the housing stock that occurs as developers respond to this new price (compute H). Then, compute the new size for the housing stock, which equals the original stock plus H.

(e) Compute the price that prevails in the market after this increase in the housing stock. Is further adjustment of the stock required to reach equilibrium? How many periods does it take for the market to reach the new equilibrium? Instead of following the sequence you have just analyzed, now suppose that rent control is imposed immediately after the demand shock, with the controlled price set at pc = 3.

(f) Compute H, the stock size at which rent control ceases to have an effect (in other words, the stock size where the equilibrium price is equal to pc). How many periods does it take for the stock to reach H under rent control?

(g) How many periods does it take for the market to reach the new equilibrium, where p = pe?

(h) Illustrate your entire analysis in a diagram.

(i) On the basis of your analysis, does rent control seem like a good response to a demand shock?

PART A TO D HAS BEEN ANSWERED ON THE PICTURE ABOVE I JUST NEED PART E TO I. PLEASE READ THIS BEFORE ANSWERING THE QUESTIONS.

Answer-a Demand is P=3-H => H=3-P Supply is P= [H +2 Suppose old supply of housing is H, and new supply id (H = 0 Than price of supply P=0+ 2 => P=2 Price of supply does not change with the change in old stock of housing, so price of supply will be fixed at P=2, because IH is 0. Price of demand also will be price of demand is also fixed at P=2. Now equilibrium price is Pe=2. Answer-b At equilibrium price P=2 demand of housing H= 3-2 = 1 Demand is H=1 at Pe=2 After cube refugee come to city demand is P=8-H As we can see price of supply is fixed at P=2, so after demand shock price of supply still will be at P=2, so the equilibrium price also will be at Pe=2 Answer-c After cube refugee come to city demand is P'= 8 - H NOW price of demand will be P = 8 - 1 = 7 New demand price will be P=7 Answer-d Demand price is now P' = 7 Supplier will supply new housing at price P' Now 7 = [H + 2 => [H = 5 If you have any doubt mention it in the comment. please click like. if you satisfied with answer.thank you Answer-a Demand is P=3-H => H=3-P Supply is P= [H +2 Suppose old supply of housing is H, and new supply id (H = 0 Than price of supply P=0+ 2 => P=2 Price of supply does not change with the change in old stock of housing, so price of supply will be fixed at P=2, because IH is 0. Price of demand also will be price of demand is also fixed at P=2. Now equilibrium price is Pe=2. Answer-b At equilibrium price P=2 demand of housing H= 3-2 = 1 Demand is H=1 at Pe=2 After cube refugee come to city demand is P=8-H As we can see price of supply is fixed at P=2, so after demand shock price of supply still will be at P=2, so the equilibrium price also will be at Pe=2 Answer-c After cube refugee come to city demand is P'= 8 - H NOW price of demand will be P = 8 - 1 = 7 New demand price will be P=7 Answer-d Demand price is now P' = 7 Supplier will supply new housing at price P' Now 7 = [H + 2 => [H = 5 If you have any doubt mention it in the comment. please click like. if you satisfied with answer.thank you