Question

In cities experiencing rapidly growing demand for housing, like Vancouver and Toronto, it is often claimed that the "overheated" real estate market puts housing out of reach of ordinary Canadians. Not surprisingly, governments often debate how best to deal with this issue. Who bears the heavy cost when rents are kept artificially low by each of the following means? a. legislated rent controls A. Government because government spending should be increased to compensate additional costs to landlords B. Only new landlords because they do not get the rate of return they expected on their investments C. Nobody suffers D. Landlords that lose part of their income and potential future tenants who cannot get accommodation

          In cities experiencing rapidly growing demand for housing, like Vancouver and Toronto, it is often claimed that the "overheated" real estate market puts housing out of reach of ordinary Canadians. Not surprisingly, governments often debate how best to deal with this issue. Who bears the heavy cost when rents are kept artificially low by each of the following means?
a. legislated rent controls
A. Government because government spending should be increased to compensate additional costs to landlords
B. Only new landlords because they do not get the rate of return they expected on their investments
C. Nobody suffers
D. Landlords that lose part of their income and potential future tenants who cannot get accommodation

Show more…

In cities experiencing rapidly growing demand for housing, like Vancouver and Toronto, it is often claimed that the "overheated" real estate market puts housing out of reach of ordinary Canadians. Not surprisingly, governments often debate how best to deal with this issue. Who bears the heavy cost when rents are kept artificially low by each of the following means?
a. legislated rent controls
A. Government because government spending should be increased to compensate additional costs to landlords
B. Only new landlords because they do not get the rate of return they expected on their investments
C. Nobody suffers
D. Landlords that lose part of their income and potential future tenants who cannot get accommodation

Added by Carolina P.

Principles of Economics

Gregory Mankiw 8th Edition

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Solved by Expert Natalie Britton

12/19/2020

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In cities experiencing rapidly growing demand for housing, like Vancouver and Toronto, it is often claimed that the "overheated" real estate market puts housing out of reach of ordinary Canadians Not surprisingly, governments often debate how best to deal with this issue. Who bears the heavy cost when rents are kept artificially low by each of the following means? a. legislated rent controls A. Government because government spending should be increased to compensate additional costs to landlords B. Only new landlords because they do not get the rate of return they expected on their investments C. Nobody suffers D. Landlords that lose part of their income and potential future tenants who cannot get accommodation

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Transcript

00:01 All right, so this question asks us to show on a graph of the market for city apartment rentals what happens when the government imposes rent control.

00:09 All right, so here we have our free market for city apartment rentals, and we have our equilibrium price and equilibrium quantity where supply intersects demand.

00:19 All right, so now we're saying that the government imposes a price control, right? and what that is is a price ceiling.

00:25 So we're going to put that below our equilibrium price.

00:29 And the whole point of rent control is to make rent more affordable for consumers.

00:36 So we're going to want it to be cheaper than our equilibrium rent.

00:40 That way it's binding, right? so you can't charge more than this price.

00:44 All right.

00:44 So what is that going to do to our market for apartment rentals? it's going to create a shortage.

00:51 So here we have our quantity demanded at this price control, which far exceeds our quantity supplied.

01:01 Right.

01:01 So the discrepancy between this quantity demanded and quantity supplied is going to be our shortage, right? so shortage equals quantity demanded minus quantity supply, right? so this is the number of people who want to buy an apartment at this price, but there aren't enough sellers willing to produce it.

01:24 Right.

01:24 And so that is just equal to this discrepancy right here.

01:28 All right.

01:29 So then we're asked what this rent control will do to the vacancy rate of apartments...

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