Some cities impose rent control laws, which are price...

Some cities impose rent control laws, which are price controls or limits on the price of rental accommodations (apartments, houses, and mobile homes). As of $2012,$ New York City alone had approximately one million apartments under rent control. In a supply-and-demand diagram, show the effect of the rent control law on the equilibrium rental price and quantity of New York City apartments, and show the amount of excess demand.

Key Concepts

Excess Demand

Excess demand, or shortage, arises when the imposed price ceiling is below the equilibrium price, causing the quantity demanded to exceed the quantity supplied. In a supply-and-demand diagram, this gap between the smaller quantity supplied and the larger quantity demanded at the controlled price is visually depicted as the area representing the shortage market, illustrating the market inefficiency created by the price control.

Supply and Demand

The supply and demand model is a fundamental economic framework used to determine the market equilibrium price and quantity of goods and services. This diagram illustrates how the intersection of supply and demand curves defines the equilibrium; when price controls such as rent control are applied, this balance is disrupted, leading to shifts that display the new quantities supplied and demanded.

Rent Control

Rent control is a government-imposed price ceiling on rental housing, intended to make housing more affordable by limiting how much landlords can charge for rent. This concept involves legal regulations that restrict the rental rates, which can lead to deviations from the market equilibrium, particularly when the enforced rent is below the equilibrium price determined by supply and demand.

Price Control

Price control refers to the practice of government regulation of prices, typically through setting maximum or minimum limits. In the case of rent control, the price ceiling is often set below the market equilibrium price, leading to imbalances such as shortages, where the quantity demanded exceeds the quantity supplied.

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