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City officials are devising two alteralive policies to reduce the risk of eviction for families living downtown, wriere rent has increased precipitously. One proposed policy
City officials are devising two alteralive policies to reduce the risk of eviction for families living downtown, wriere rent has increased precipitously. One proposed policy is to divert housing demand away by building low income apartments in the surrounding area. The other proposed policy is to subsidize the development of low income apartments within the downtown area. For simplicity, we assume that these are all 2 bedroom apartments that have all the same attributes and that the slope of the supply and demand curves do not change. Please answer the following three questions. 1. The line PO in the diagram to the left shows the current rent. Downtown Housing Market The objective of any policy is to lower the rent to P1, while minimizing the impact on the quantity of apartments available. Show the optimal policy impact on the graph to the left by shifting either the supply or demand curve. 2. Which curve is more elastic? Demand oo Supply PO 3. In this case, the best policy decision is to: Supply Demand Rent ($ per apartment) O build apartments in the surrounding area P1 O institute rent control, mandating that rents stay at, or below, P1 O distribute free rubber bands to low- income tenants subsidize development within the O downtown area Quantity of Apartments
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