Suppose a new off-campus university apartment complex could rent its rooms on the open market for $900 a month. If, instead, the university chooses to cap the price of rooms to $500 a month for students, the result would be that

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Business

Braxton Huff

23 September, 08:08

Suppose a new off-campus university apartment complex could rent its rooms on the open market for $900 a month. If, instead, the university chooses to cap the price of rooms to $500 a month for students, the result would be that

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Rayne Macias · Answer 1

a shortage would arise since quantity demanded would exceed the quantity supplied

Explanation:

The law of demand states an inverse relationship between price of a good and it's demand.

In the given case, per month rental for rooms has significantly reduced for students. This would result into an immediate increase in demand for the rooms. Now since, the rooms available are limited in number, a shortage would arise.

Owing to such a shortage, a possibility would arise wherein students who do not require such rooms may avail such rooms at $500 and subsequently let out the rooms to outsiders at anything below $900 thereby earning a profit.