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Assume that the City Council in Prescott, Arizona is considering implementing price ceilings on rental units based on the number of bedrooms in the unit. The demand function for rental units (on a single bedroom equivalent basis) is given by QD = 120 - 4P and the supply function is given by QS = 2P, where P is price and Q is quantity. The Council is considering imposing a ceiling price on rental units of Pmax = 16.
1. Using the given functions, draw a corresponding demand curve and a supply curve. Properly label the equilibrium price and quantity. Then show what will happen to equilibrium if the City Council imposes a price ceiling at 16.
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