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chaptersix - Ch 6 Markets in Action Housing Markets and...

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Ch. 6 Markets in Action Housing Markets and Rent Ceilings - Short-Run Supply: Shows the change in the quantity of housing supplied as the rent changes while the number of houses and apartment buildings remains constant. The short-run supply response arises from changes in the intensity with which existing buildings are used. The higher the rent, the greater is the incentive for families to rent out some of the rooms that they previously used themselves. - Long-Run Supply: Shows how the quantity of housing supplied responds to a change in price after enough time has elapsed for apartment buildings and houses to be erected or existing ones to be destroyed. As long as the rent exceeds the marginal cost of building, developers have an incentive to keep on building. Long-run supply is perfectly elastic at a rent equal to marginal cost. - Equilibrium: The equilibrium rent and quantity are determined by demand and short-run supply. As rent rises, the quantity of housing demanded decreases and the quantity supplied increases. These changes occur because people economize on their use of space and make spare rooms, etc, available to others. The higher rent allocates the scarce housing to the people who want it most highly and are willing to pay the most for it. - Long-Run Adjustments: With sufficient time for new apartments and houses to be constructed, supply increases. o Building booms come to an end when there is no further profit in building new apartments and houses. - A Regulated Housing Market: o Price ceiling : a regulation that makes it illegal to change a price higher than a specified level. o Rent ceiling : when a price ceiling is applied to housing markets o How does a rent ceiling affect the housing market? Depends on whether it is imposed at a level that is above or below the equilibrium price (rent). A price ceiling set above has no effect. Because the price ceiling does not constrain the market forces. A price ceiling below the equilibrium price has powerful effects on a market.
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