ECON 1B03 Lecture Notes - Working Poor, Surplus Product, Economic Equilibrium

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24 Jun 2013

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ECON 1B03 Full Course Notes

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Enacted when policy makers believe the market price is unfair to buyers or sellers. The government will freeze prices at a predetermined level that they feel will make members of society better off. A legal maximum on the price at which a good can be sold. It is only effective if set below equilibrium price, where it will lead to a shortage. Above equilibrium price, it will have no effect (not binding). The government"s goal is to help the poor by making housing more affordable. It sets a maximum rent for housing that is below equilibrium price. In the short run, the number of apartments is fixed, so supply of housing is inelastic. Demand for housing in the short run is relatively inelastic. In the long run, low rents can mean that landlords may convert to condos, get out of the rental business, and/or won"t maintain existing apartments, so supply is inelastic.

Related Questions

1 . Effects of rent control

Rent controls force landlords to price apartments below the equilibrium price level. An immediate effect is a shortage (excess demand) of apartments, because the quantity of apartments demanded is greater than the quantity supplied at the regulated price.

When cities prevent landlords from charging market rents, which of the following are common long-run outcomes? Check all that apply.

The future supply of rental housing units increases.

The quantity of available rental housing units falls.

The quality of rental housing units falls.

Nonprice methods of rationing emerge.

blackcoyote423

When cities prevent landlords from charging market rents, which of the following are common long-run outcomes? Check all that apply.

The future supply of rental housing units increases.

Efficient use of housing space results.

Nonprice methods of rationing emerge.

The quantity of available rental housing units falls.

Suppose that the demand and supply schedules for rental apartments in the city of Gotham are as given in the table below.

Rent	Demand	Supply
2,500.00	10,000	15,000
2,000.00	12,500	12,500
1,500.00	15,000	10,000
1,000.00	17,500	7,500
500.00	20,000	5,000

1. What is the market equilibrium rental price per month and the market equilibrium number of apartments demanded and supplied?

2. If the local government can enforce a rent-control law that sets the maximum monthly rent at $1,500, will there be a surplus or a shortage? Of how many units? And how many units will actually be rented each month?

3. Suppose that a new government is elected that wants to keep out the poor. It declares that the minimum rent that can be charged is $2,500 per month. If the government can enforce that price floor, will there be a surplus or a shortage? Of how many units? And how many units will actually be rented each month?

4. Suppose that the government wishes to decrease the market equilibrium monthly rent by increasing the supply of housing. Assuming that demand remains unchanged, by how many units of housing would the government have to increase the supply of housing to get the market equilibrium rental price to fall to $1500 per month? To $1000 per month? To $500 per month?

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ECON 1B03 Lecture Notes - Working Poor, Surplus Product, Economic Equilibrium

ECON 1B03 Full Course Notes

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