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 demand curves. ? The Market for Rental Properties in Los Angeles and Orange Counties (odse 2700 2400 2100 1000 Supply Demand Supply

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 demand curves. ? The Market for Rental Properties in Los Angeles and Orange Counties (odse 2700 2400 2100 1000 Supply Demand Supply

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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2. Analyzing occupancy rates
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 demand curves.
RENTAL PRICE Dollars per month)
The Market for Rental Properties in Los Angeles and Orange Counties
3000
2700
2400
2100
1000
1500
600
300
Supply
Demand
0
D 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
As a result of rent control, there is a
Demand
Adjust the previous graph to show the effect of the increase in earnings.
The increase in earnings results in a new equilibrium rent of 5
units.
Supply
Vacancies Demanded with Price Control
New Rent
Vacancies Supplied with Price Control
Junits.
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 $1,800 per month.
On the previous graph, use the grey point (star symbol) to indicate the number of vacancies demanded. Then use the tan point (desh symbo) to
indicate the number of vacancies supplied.
vacant units in the market.

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