In the diagram above, what will happen if the government sets the price for rent at Point B?
The price of rent will rise to meet equilibrium.
The price of rent will fall to meet equilibrium.
There will be a shortage of rental properties.
There will be a surplus of rental properties.
The diagram shows the relationship between demand (blue line) and supply per rental (red line). Note that there is a break-even point where the two lines intersect, at which point supply and demand for rent are equal. This equilibrium point is between lines A and B.
If the government establishes that the price must be B, the economy will not find a equilibrium because in B the quantity demanded will be greater than the supply, since the prices charged are below equilibrium. For the claimants it will be good, but for the bidders it will be bad there will be no stimulation. Therefore, there will be a shortage of housing supply.
