Government Price Controls Create Shortages in Housing

Steps:

• Economy starts with 20% housing shortage (demand exceeds supply by 20%).
• Government adds 10% more supply targeted at poor families via direct provision.
• This provision fixes prices 10% below equilibrium, causing excess demand in that segment.
• Result: 10% shortage emerges specifically in government housing due to the price ceiling.

Why C is correct:

• Price ceilings below equilibrium (law of supply and demand) always create shortages, as quantity demanded exceeds quantity supplied; here, the 10% below-equilibrium fix directly causes a 10% shortfall in government housing.

Why the others are wrong:

• A: Intervention partially addresses the overall 20% shortage, reducing rather than increasing private market imbalance.
• B: 10% addition covers only half the 20% shortage for poor families, leaving waiting lists uncleared.
• D: No mechanism described reduces private rental supply; focus is on government addition.

Final answer: C

[VIOLATION]