Principles of Economics- Mankiw (5th) 119

Principles of Economics- Mankiw (5th) 119 - CHAPTER 6 S U P...

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CHAPTER 6 SUPPLY, DEMAND, AND GOVERNMENT POLICIES 123 for housing in a city may not be highly responsive to rents in the short run be- cause people take time to adjust their housing arrangements. Therefore, the short-run supply and demand for housing are relatively inelastic. Panel (a) of Figure 6-3 shows the short-run effects of rent control on the housing market. As with any price ceiling, rent control causes a shortage. Yet because supply and demand are inelastic in the short run, the initial shortage caused by rent control is small. The primary effect in the short run is to reduce rents. The long-run story is very different because the buyers and sellers of rental housing respond more to market conditions as time passes. On the supply side, landlords respond to low rents by not building new apartments and by failing to maintain existing ones. On the demand side, low rents encourage people to find their own apartments (rather than living with their parents or sharing apartments with roommates) and induce more people to move into a city. Therefore, both supply and demand are more elastic in the long run.
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

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