As you can see from the article in the prior problem, "Rents Hit All-Time Highs amid Job Growth and Low Vacancy Rates," some people move out as a result of rent increases, while others are ready to pay an even higher rent. Rent control adds yet another aspect by setting a ceiling on what the rental price can ultimately rise to. The supply and demand model can be used to illustrate the mechanism that leads to all these different market outcomes. Consider the market for rental properties in the Inland Empire in Southern California. Suppose that while employment increased by 22% in the Inland Empire, the average rent has increased by 20%. (Assume for a moment that there are no rent control regulations.) Adjust the following graph to illustrate the rent increase by either using the black point (cross symbol) or by shifting the supply and demand curves. The Market for Rental Properties in the Inland Empire 3000 2700 Supply Demand 2400 2100 1800 Supply 1500 1200 New Rent 900 Demand 600 Vacancies Demanded with Price Control 300 100 200 300 400 500 00 700 800 900 1000 Vacancies Supplied with Price Control QUANTITY (Number of vacant units) As a result of the 20% rent increase, the number of vacant units demanded to units. Adjust the previous graph to show the effect of the increase in jobs. RENTAL PRICE (Dollars per month)

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