Imagine for a minute that you live on an island where everyone is self-sufficient, except for housing, and everyone needs to buy a house.
Say there are 100 people who need to buy houses, and they use sea shells as currency, and there's 100 sea shells, and 100 homes.
It's safe to say that a house might cost one sea shell.
Let's say that there's a big storm that washes a bunch of new sea shells onto the beach, and suddenly someone finds 100 more sea shells.
Now there are 100 people who need to buy 100 homes, but there's 200 sea shells. We're rich!
At this point, it's safe to say that the house might cost two sea shells. Everything is in equilibrium.
But let's say we freak out and say "Housing doubled! We need to do something!" and they implement price controls so houses cost one sea shell.
We have a problem: There are 100 people and 100 houses, but there's enough sea shells out there to buy two houses for every person on the island.
Some people may buy more than one house, and other people won't be able to get a house. The increase in money supply and the fixing of prices at below market rates results in inequality and shortages.
Say there are 100 people who need to buy houses, and they use sea shells as currency, and there's 100 sea shells, and 100 homes.
It's safe to say that a house might cost one sea shell.
Let's say that there's a big storm that washes a bunch of new sea shells onto the beach, and suddenly someone finds 100 more sea shells.
Now there are 100 people who need to buy 100 homes, but there's 200 sea shells. We're rich!
At this point, it's safe to say that the house might cost two sea shells. Everything is in equilibrium.
But let's say we freak out and say "Housing doubled! We need to do something!" and they implement price controls so houses cost one sea shell.
We have a problem: There are 100 people and 100 houses, but there's enough sea shells out there to buy two houses for every person on the island.
Some people may buy more than one house, and other people won't be able to get a house. The increase in money supply and the fixing of prices at below market rates results in inequality and shortages.
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