The paper "Macroeconomics: Principles and Policy" is a great example of an assignment on macro and microeconomics. Governments would establish binding price ceilings for rental accommodation with the aim of protecting tenants from being overcharged by landlords. The legislations were meant to prevent private residential property owners from increasing rent charges excessively. The legislation would ensure any increase is gradual and that landlords continue to receive fair returns on their investment. This would enhance the stability of the economy by slowing down displacement during booming economic cycles. In New York, USA, in the late 1940s, soldiers returned from war and soon thereafter stopped receiving military pay.
Their return increased the demand and prices for apartments. This meant they could no longer afford to pay rent and the government intervened to help them by enacting a binding price ceiling on rent. However, this had the effect of increasing demand and lowering the quality of the apartments and soon they were all taken up thereby creating a shortage for latecomers (Baumol & Blinder 2011). Another example is Italy where the government enacted a binding price ceiling on rent in order to enhance the growth of the economy.
This enabled people from low socio-economic backgrounds to afford good apartments. On the downside, it made landlords cease performing care and maintenance checks on the apartments because they were no longer able to deal in a perfectly competitive market and this lowered the living conditions within the apartments. Describe, using diagrams where appropriate, the market for rental accommodation before and after the introduction of rent controls. Illustrate the surpluses accumulating to producers and consumers before and after and any deadweight loss after the introduction of the price ceiling. The enactment of rent control creates problems.
It leads to a persistent excess demand for the rental units available. This leads to inefficiency because the price ceiling is below the equilibrium price. At that price ceiling, the marginal benefit is higher than the marginal cost (Baumol & Blinder 2011, p. 83). This inefficiency is equivalent to a deadweight
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