Suppose that the government decides to impose a rent control...

Suppose that the government decides to impose a rent control of $1,900 per month on rental apartments in New York City. On the following grap use the green point (triangle symbol) to shade the area representing consumers' surplus in the presence of rent control. Use the purple point (diamond symbol) to shade the area representing producers' surplus after the rent control. Then use the grey point (star symbol) to shade the ar representing deadweight loss resulting from the rent control. MONTHLY RENT (Dollars per apartment) 2600 Demand 2400 2200 2000 Rent Ceiling 1800 Supply 1600 0 0.8 1.6 2.4 3.2 4.0 QUANTITY OF APARTMENTS (Millions per month) ? CS w/ Rent Control ? PS w/ Rent Control ? Deadweight Loss

Transcript

00:01 So suppose that it is decided that rent control in new york city will be abolished and that market rent will now prevail.

00:10 I assume that all rental units identical and so are all fired at the same rent to address the plight of presidents who may be unable to pay the market rent.

00:21 An income income supplement to be paid to all income low income household equal to the difference between the old control rent and the income.

00:31 New market rent so the first question wants us to use a diagram to show the effect on the rental market of the elimination of rent control and what will happen to the quality and the quantity of rental housing supplied so first of all with the price ceiling adds um i'm going to be drawing that so this the diagram should look like this and the x -axis should have the quantity of apartments quantity of apartments and then the y -axis shop the monthly rent so we're going to have on p c and p1 over here and then qc and then q1 so pc just have a straight line over there and then it comes down to qc and then p1 comes down to q1 so so at this point there's an equilibrium right there and this is point a and then this is the equilibrium one.

02:12 This is a supply and then the demand goes over it.

02:16 D1 goes over it.

02:18 So this is d1 right here and then this is where the price ceiling occurs.

02:27 So from this diagram with the price ceiling at p c.

02:33 This is the price selling right at pc.

02:36 The quantity bought and the quantity is sold is at qc.

02:40 So this is the quantity bought at sold.

02:43 So, and this is the point eight is indicated by.

02:48 So the quantity bought and sold is qc and it's indicated by a right here.

02:54 So the price selling at pc is going to be eliminated and the rent returns to the market equilibrium.

03:00 So this price ceiling is eliminated and the rent returns.

03:04 Returns back to the equilibrium rent of p1 right here so the quantity supplied on the other hand will increase from qc to the equilibrium quantity q1 right here so at the same time you should also expect that the quality of the rental housing will improve right so as as as you know so one of the inefficiencies um cost by pricing is inefficiently low quality so as the the rent returns back to the equilibrium rent, the landlords will have incentive to invest in the quality of their apartment to attract renters.

03:45 So as per the question, what will happen to the quality and quantity of rental house supplied? so as to the question, as the rent returns to the equilibrium rent, landlords have incentive to invest in the quality of the apartment in order to attract rentals.

04:11 So, as rent returns to equilibrium rent landlords will have the incentive so invest in the quantity but are the quality of your apartments so attract rentals so now moving on to the second part of the the additional effect of the income supplement policy on the market and what effect does it have on the market rent and quantity of rental outsing supplied in comparison to your answers in part a.

05:19 So for that i'm going to be drawing the diagram, the second diagram...

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