2. Some analysts have argued that lodging reservation website Airbnb is responsible for an increase in rent and housing prices in most American cities. Recent academic research supports this: a study found that between one eighth and one fifth of the observed increases in rents and home prices in US metropolitan areas between 2012 and 2016 can be attributed to Airbnb.

a) Use the supply and demand model to make sense of these effects in the typical US city. Make sure you clearly define the markets on which you choose to focus, explain which curves are shifting and why, and (if you think this adds to the analysis) justify the shape of the supply and demand curves by discussing their relative elasticities.

b) Over time, what do you expect the impact of Airbnb to be on rental rates and housing prices? Justify your answer using the supply and demand model. Once again, make sure you are clear and explicit about how you are defining the relevant markets and (if you think this helps the analysis) back up your arguments by bringing up elasticities.