Can you please give me 2 questions based on this topic which I can asked during
ID: 359190 • Letter: C
Question
Can you please give me 2 questions based on this topic which I can asked during the presentation?
Rent Control
What is Rent Control?
• Regulation of rent to prevent unreasonable or excessive increases. Usually acts as a
price ceiling.
• Used to keep housing affordable.
• Rent control varies by state and county. It is prohibited in some states.
• Applies to residential apartments.
History of Rent Control
• Originated during World War II under president Franklin D. Roosevelt in 1942, with
the enactment of the Emergency Price Control Act (EPCA) in order to regulate
inflation and economy.
• After the end of the war, the Federal Housing and Rent Act of 1947 was enacted and
became effective on July 1, 1947, after the expiration of the EPCA. New construction
was exempted and pre 1947 buildings remained under rent control regulation.
• Regulations applied to rent, services, and evictions.
• In 1958, decontrol efforts began that continued into the 1960’s.
Pros of Rent Control
• Makes housing more affordable by limiting rent increases.
• Offers eviction protection, where a just cause must be defined. This prevents the
landlord from evicting someone to secure higher rent from a new tenant. Examples of
just cause include breach of lease or failure to pay rent.
• Tenant usually has the ability to renew lease up to two years.
• Assures full occupancy.
Cons of Rent Control
• Results in shortages of apartments for rent.
• Quality of housing deteriorates as landlords cut maintenance and repairs to decrease
costs.
• Tax benefit is usually received by tenant.
• Tenant has less money to reinvest in the property.
• Results in decline in property tax revenues.
• Discourages construction of new rental properties.
• Can lead to abandonment of property or conversion to non-residential use.
Key Terms
• Price Ceiling- maximum price on what the landlord can charge tenants.
• Price floor- minimum price a seller may charge, usually above equilibrium to be
effective. At a price above the market equilibrium the quantity supplied will exceed
the quantity demanded resulting in a surplus in the market. Ex. Minimum wage.
• Equilibrium- state of balance, where demand and supply curves intersect. Quantity
supplied equals quantity demanded. Allocation of goods is at most efficient.
• Shortage- results as quantity demanded exceeds quantity supplied.
• Demand- how much of a service or product is desired by buyers.
• Supply- what the market can offer or what goods are available.
Key Terms
• Elasticity- A measure of how much one economic variable responds to changes in
another economic variable.
• Demand Schedule-downward-sloping line that graphically shows the quantities
demanded at each possible price
• Consumer surplus- difference between the demand curve (marginal benefit) and the
price (marginal cost).
• Elastic demand- A situation in which consumer demand is sensitive to changes in
price
• Inelastic demand- A situation in which an increase or a decrease in price will not
significantly affect demand for the product
Supply and Demand Curve
• The higher the price, the lower the
quantity consumers’ demand, and the
higher the price, the higher the
quantity producers supply.
• Law of Demand- consumers buy more
of a good when its price decreases and
less when its price increases.
Demand Shifts
• Demand shifts are defined by more or less of a given product or service being required
at a fixed price, resulting in a shift of both price and quantity. An increase in demand
will shift price upwards and volume to the right, increasing the overall value of both
metrics relative to the prior equilibrium point.
Demand Shifts Left
• If the demand curve shifts right, there
is a greater quantity demanded at each
price, the newly created shortage at
the original price will drive the market
to a higher equilibrium price and
quantity. As the demand curve shifts
the change in the equilibrium price
and quantity will be in the same
direction, i.e., both will increase.
Demand Shifts Right
• If the supply curve shifts left, say due
to an increase in the price of the
resources used to make the product,
there is a lower quantity supplied at
each price. The result will be an
increase in the market equilibrium
price but a decrease in the market
equilibrium quantity. The increase in
price, causes a movement along the
demand curve to a lower equilibrium
quantity demanded.
Supply Shifts Left
• A rightward shift in the supply curve,
say from a new production technology,
leads to a lower equilibrium price and
a greater quantity. Note that as the
supply curve shifts, the change in the
equilibrium price and quantity will be
in opposite directions.
Supply Shifts Right
• When demand and supply are
changing at the same time, the
analysis becomes more complex. In
such cases, we are still able to say
whether one of the two variables
(equilibrium price or quantity) will
increase or decrease, but we may not
be able to say how both will change.
When the shifts in demand and supply
are driving price or quantity in
opposite directions, we are unable to
say how one of the two will change
without further information.
Law of Diminishing Return
If one aspect of production is increased while all the others remain at the same level,
the overall return will decrease after a certain point
References
• History of Rent Regulation. (n.d.). Retrieved October 30, 2017, from
http://www.tenant.net/Oversight/50yrRentReg/history.html
• Rent control. (2017). Columbia Electronic Encyclopedia, 6th Edition, 1.
• Rent Control Laws by State. (n.d.). Retrieved October 29, 2017, from
http://www.nmhc.org/Research-Insight/Rent-Control-Laws-by-State/
• Salvatore, D. (2015). Managerial economics in a global economy (8th ed.). New York:
Oxford University Press.
• Supply and demand curve. (2016, February 08). Retrieved October 29, 2017, from
https://epthinktank.eu/2016/02/09/secular-stagnation-and-the-euro-area/supply-anddemand-curve/
• Supply and Demand. (n.d.). Retrieved October 30, 2017, from
https://courses.byui.edu/econ_150/econ_150_old_site/lesson_03.htm
Explanation / Answer
First Question:
Why does the government not increase the supply of housing by providing incentives for home ownership? The government can shift the supply curve for housing to the right by providing housing loans at low rates, providing tax rebates for investing in housing, and directly selling land at low prices for home building. If the government shifts the supply curve for housing to the right, the price of housing will decline and become more affordable.
Second Question:
As part of the United States stimulus program, why does the government not spend more on building affordable homes? The stimulus program normally builds infrastructure. However, building housing will not only stimulate the economy but will also shift the supply curve to the right. With an increase in the supply of housing, the rent and housing prices will decline and make housing affordable.