ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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As you can see from the article in the prior problem, "Rents Hit All-Time Highs amid Job Growth and Low Vacancy Rates," some people
move out as a result of rent increases, while others are ready to pay an even higher rent. Rent control adds yet another aspect by
setting a ceiling on what the rental price can ultimately rise to. The supply and demand model can be used to illustrate the mechanism
that leads to all these different market outcomes.
Consider the market for rental properties in Los Angeles and Orange counties in Southern California. Suppose that while average
earnings increased by about 10% in Los Angeles and Orange counties, the average rent has increased by 20%. (Assume for a moment
that there are no rent control regulations.)
Adjust the following graph to illustrate the rent increase by either using the black point (cross symbol) or by shifting the supply and demara
Hint: Determine whether this scenario leads to a shift in the demand/supply curve or a movement along the demand/supply curve.
(?)
The Market for Rental Properties in Los Angeles and Orange Counties
RENTAL PRICE (Dollars per month)
2000
1800
1000
1400
1200
1000
800
600
400
200
10
0
100
Supply
Demand
800 900 1000
000 700
500
400
200 300
QUANTITY (Number of vacant units)
O
Demand
C
Supply
+
New Rent
Vacancies Demanded with Price Control
D
Vacancies Supplied with Price Control
D
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Transcribed Image Text:As you can see from the article in the prior problem, "Rents Hit All-Time Highs amid Job Growth and Low Vacancy Rates," some people move out as a result of rent increases, while others are ready to pay an even higher rent. Rent control adds yet another aspect by setting a ceiling on what the rental price can ultimately rise to. The supply and demand model can be used to illustrate the mechanism that leads to all these different market outcomes. Consider the market for rental properties in Los Angeles and Orange counties in Southern California. Suppose that while average earnings increased by about 10% in Los Angeles and Orange counties, the average rent has increased by 20%. (Assume for a moment that there are no rent control regulations.) Adjust the following graph to illustrate the rent increase by either using the black point (cross symbol) or by shifting the supply and demara Hint: Determine whether this scenario leads to a shift in the demand/supply curve or a movement along the demand/supply curve. (?) The Market for Rental Properties in Los Angeles and Orange Counties RENTAL PRICE (Dollars per month) 2000 1800 1000 1400 1200 1000 800 600 400 200 10 0 100 Supply Demand 800 900 1000 000 700 500 400 200 300 QUANTITY (Number of vacant units) O Demand C Supply + New Rent Vacancies Demanded with Price Control D Vacancies Supplied with Price Control D
RENTAL PRICE (Dotars)
1000
500
000
400
200
0
0
Demand
100 200 300 400 500 600 700 800 900 1000
QUANTITY (Number of vacant units)
܀
As a result of the 20% rent increase, the number of vacant units demanded
The increase in earnings results in a new equilibrium rent of 5
units.
New Rent
*
Vacancies Demanded with Price Control
Vacancies Supplied with Price Control
to
Adjust the previous graph to show the effect of the increase in earnings.
Hint: Determine whether this scenario leads to a shift in the demand/supply curve or a movement along the demand/supply curve.
units.
per month and a new equilibrium number of vacancies of
Now suppose that the state of California Introduces rent control by setting the maximum rent at $1,200 per month.
On the previous graph, use the grey point (star symbol) to indicate the number of vacances demanded. Then use the tan point (dash symbol) to
indicate the number of vacancies supplied.
As a result of rent control, there is a
vacant units in the market.
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Transcribed Image Text:RENTAL PRICE (Dotars) 1000 500 000 400 200 0 0 Demand 100 200 300 400 500 600 700 800 900 1000 QUANTITY (Number of vacant units) ܀ As a result of the 20% rent increase, the number of vacant units demanded The increase in earnings results in a new equilibrium rent of 5 units. New Rent * Vacancies Demanded with Price Control Vacancies Supplied with Price Control to Adjust the previous graph to show the effect of the increase in earnings. Hint: Determine whether this scenario leads to a shift in the demand/supply curve or a movement along the demand/supply curve. units. per month and a new equilibrium number of vacancies of Now suppose that the state of California Introduces rent control by setting the maximum rent at $1,200 per month. On the previous graph, use the grey point (star symbol) to indicate the number of vacances demanded. Then use the tan point (dash symbol) to indicate the number of vacancies supplied. As a result of rent control, there is a vacant units in the market. Grade It Now Save & Continue Continue without saving
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