Housing Market Equilibrium with Shifting Demand and Supply

Steps:

• Recognize housing shortage as excess demand at current price, indicating initial disequilibrium.
• Note rising demand from higher incomes shifts demand curve rightward, worsening shortage.
• Observe firms entering market increases housing supply, shifting supply curve rightward.
• Select diagram showing both rightward shifts leading to new equilibrium with more housing.

Why A is correct:

• Depicts rightward demand shift (from income growth) and rightward supply shift (from new firms), per law of supply and demand, resolving shortage via higher quantity.

Why the others are wrong:

• B: Shows only demand shift right, ignoring supply response, so shortage persists.
• C: Illustrates supply shift left, which would exacerbate shortage, contradicting firm entry.
• D: Depicts no shifts or equilibrium without changes, failing to represent rising demand or supply increase.

Final answer: A