As you can see from the article in the prior problem, "Rents Hit All-Time Highs amid Job Growth and Low Vacancy Rates," some peoplemove out as a result of rent increases, while others are ready to pay an even higher rent. Rent control adds yet another aspect bysetting a ceiling on what the rental price can ultimately rise to. The supply and demand model can be used to illustrate the mechanismthat 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 averageearnings increased by about 10% in Los Angeles and Orange counties, the average rent has increased by 20%. (Assume for a momentthat 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.Hint: Determine whether this scenario leads to a shift in the demand/supply curve or a movement along the demand/supply curve.RENTAL PRICE (Dollars per month)The Market for Rental Properties in Los Angeles and Orange Counties40003600320028002400200016001200800400SupplyDemandDemandSupplyNew RentVacancies Demanded with Price Control00 100200 300 400 500 600 700 800 900 1000Vacancies Supplied with Price ControlQUANTITY (Number of vacant units)As a result of the 20% rent increase, the number of vacant units demandedtounits.decrease/increasesAdjust 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.The increase in earnings results in a new equilibrium rent of $per month and a new equilibrium number of vacancies ofunits.Now suppose that the state of California introduces rent control by setting the maximum rent at $2,400 per month.On the previous graph, use the grey point (star symbol) to indicate the number of vacancies demanded. Then use the tan point (dash symbol) toindicate the number of vacancies supplied.surplus/shortageAs a result of rent control, there is aofvacant units in the market.

A 20% increase in average rent, contrasted with a 10% increase in average earnings, affects the…

On the previous graph, use the grey point (star symbol) to indicate the number of vacancies demanded. Then use the tan point (dash symbol) to indicate the number of vacancies supplied. surplus/shortage As a result of rent control, there is a of vacant units in the market.

On the previous graph, use the grey point (star symbol) to indicate the number of vacancies demanded. Then use the tan point (dash symbol) to indicate the number of vacancies supplied. surplus/shortage As a result of rent control, there is a of vacant units in the market.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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