The Economics of Price Controls & Price Ceilings
We looked at the effect of price controls on rent. The question we asked was why is there a social obligation for renters to make rent cheaper for community? Rent control puts constraints on price and messes up supply and demand flow.
Looking at a graph we saw that when you introduce price controls:
Supply is not effected, however Quantity Supply decreases and price controls do not let it rise.
Demand doesn't change either we simply just move along the demand curve and the Quantity Demand increases.
You then get a new equilibrium, which in an effort to make housing more affordable you create shortage.
No comments:
Post a Comment