Friday, February 10, 2012

Rent Controls in San Francisco

In Principles of Microeconomics we briefly look at the economic effect of price ceilings. Using the supply and demand model I show that the model predicts that a binding price ceiling will result in a shortage. The Bay Citizen has an article showing exactly that. In San Francisco, for many apartments the rent that is charged is determined by the cities Rent Board. As a result of government policies on rent control (among others) there is a significant shortage of apartments - specifically 31,000 (about 8% of the total) apartments sit vacant. This is exactly the prediction of the supply and demand model under a binding price ceiling; that quantity demanded by those looking to live in an apartment is greater than the quantity supplied of those willing to rent an apartment to those looking to rent an apartment.

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