(Idea, tax rent b/c not doing anything, don't tax work, we want people to work)
Market Equilibrium: P* = $1,000, Q*=12,000
Controlled Equilib: P (with price ceiling) = $800. Qd=14,000 Qs=10,000
If dictate lower prices, less suppply
-->landlords can only charge $800, the quantity supplied is lower
Consider the costs to deliver, some space becomes coops, offices buisness
-Quantity supplied falls by 2,000
Long run, supply of apartments elastic, able to adjust the number of rooms, wallls
Price lowered does NOT change demand
BUT the quantity demanded increases
-People decide to share apartment, live at home,
Ceiling: price doesn't change
-creates new equilibrium, controlled equilibrium
-->shortage of 4,000
"Price ceiling is binding" ->set price control below price that would have prevailed in the market
(Not binding means above market price)
Why equilib?
Buyers/sellers cannot do something better
-->sellers' plan satisfied, buyers plan not satisfied
Consider: less apartments than before price control!
w/out control, buyers can bid up the price
At price of $800, are apartments less scarce?
Depends why the price fell.
If legislated price, unclear
Consequences of Rent Control
1) Reduced availability & harder to get
-Some other cost will arise
Qd = Qs = 10,000, want to reach equilib. demanders find way to get
ex: wait in long lines to get gas, drive around to find shortest line
all things incr. the cost of obtaining beyond the sticker price
2) Lower Quality Apartment
-Leaky pipe kept leaking; if you don't like, plenty of other people ready to buy that apartment
-Cost $ to fix it, & cannot charge more for rent, cannot afford repairs
3) Other $ Will Be Paid, Black Markets
-Customers willing to pay more than $800, landlords may charge "finders fee"
ex: apartment brokers find apartments for you, illegal bribes/kickbacks
4) Misallocations
10,000/14,000 = 5/7
-People who value the thing the most may not get it
-Live w/ annoying roommate, can't move out b/c hard to find apartment
Sublet: cheaper to keep large apartment, sublet rooms but gains do not reach the landlord
5) Other Markets
More expensive to live in the city, now more expensive to sprawl, AND incr. $ to transportation
6) Fairness
Who's able to pay
7) Discrimination
Cost of discrim. reduced, don't allow market to work, don't face costs
-Age, size of people, sexual pref. race, don't allow market to work, don't face the cost
-Without rent control and don't lease out, lose the $ of those people
-point of market clearing means no line to fill up
-BUT with rent control, don't lost $, plenty of people will find you
By being landlord, make room available to somebody, does some social if does discrim a bit
Consider: Buyers can be discriminating too
8) Monitoring/Enforcing Costs
-Costly to review boards, undercover agents
1. Reduce incentives; supply curve shifts in, flatter
2. Monitoring destructive
-People/Resources not producing goods/services we want
-example of broken window fallacy, wasteful practice
-->world without rape, fighting etc. there is no need for cops
-Right kind of regulation yes, but goal should not be regulation
3. Even if police do good job, (ignore waste) have to raise taxes to fund; taxes costly on consumers and to collect
No comments:
Post a Comment