Please apply demand and supply analysis to answer the follow

Please apply demand and supply analysis to answer the following questions related to the U.S. real estate market:             

A) What is the impact on residential real estate market after the Fed stopped QE3 (buying bonds monthly from banks) in 2014? Please state the shift on either demand curve or supply curve.   

B) If a price ceiling on real estate agency commission is set at 1% only, what will be the impact on new market equilibrium price and quantity of residential real estate market? Please comment on it

Solution

A. When Fed stopped QE3(buying bonds monthly from banks)in 2014 then, banks will have less loanable funds. This will raise interest rate as suppliers are unchanged but funds have fallen. So that there will be a first come first serve basis job. This supply shortage with given demand will make the banks to charge higher interest rate. There will be a supply shortage due to shortage in funds. Hence, supply curve would shift leftward compared to its initial supply curve. Demand curve is downwards sloping and supply curve is upward rising. Leftward shift in supply curve means at initial price there is an excess demand. Hence, price will rise unless market clear. New equilibrium output is lower at the expense of higher price level in the residential real estate market.

B. When producers charge higher prices then, price ceiling comes into existence. At 1% price ceiling on real estate agency commission price will fall but quantity demand will rise and quantity supply will fall as par the standard rules of law of demand and supply. Consequently, there will be an excees demand in the market and thus, market will not get clear unless the price ceiling is withdrawn.