[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

unable to find an apartment when rent control is imposed. Few apartments are available
at or below the median rental in cities with rent control; in cities without rent
control, it is much easier to find an apartment that is reasonably priced. Those consumers
who do happen to get a rent-controlled apartment benefit from the policy.
They would have been willing to pay more to get an apartment, but they only have
to pay R 1 . Renters who are fortunate enough to find a rent-controlled apartment
gain, while landlords and those who cannot find housing lose.
In the long run, the supply of apartments is more elastic. Low rents discourage
the construction of new apartments and cause some landlords to remove units from
the rental market (converting them to condominiums and selling them, for example).
Consumer surplus falls as rent control leads to a decline in the quantity of apartments
available for rent. Thus, the cost of rent control in terms of the inefficient
allocation of resources and its distributional impact can change in the long run. In
general, the distributional impact is smaller in the long run, while the efficiency cost
is greater. In the long run, landlords will put their money elsewhere—where they will
get a normal return on their capital. The benefits to rent control will diminish, as the
decreasing supply of rental apartments will result in more and more of those who
would like to get rent-controlled apartments simply finding that none are available.
Fundamentals of Competitive Markets 2
THE EQUILIBRIUM PRICE MAXIMIZES
CONSUMER PLUS PRODUCER SURPLUS
When the market clears, firms are able to sell the quantity that maximizes their profits
at the market price, and households are able to purchase the quantity that maximizes
their utility at the market price. At the equilibrium price, marginal cost equals
consumers’ willingness to pay. At a price above the equilibrium price, the marginal
cost of producing one more unit is less than consumers’ marginal willingness to pay.
At a price below the equilibrium price, the marginal cost of producing one more unit
is greater than consumers’ marginal willingness to pay. At the equilibrium price in a
competitive market, consumer plus producer surplus is maximized.
Internet Connection
DIGITAL ECONOMIST
The Digital Economist provides an online graphic demonstration
of consumer surplus. You can test your understanding
of how consumer surplus is calculated at www.digital
economist.com/cs_4010.html.
COMPETITIVE MARKETS AND ECONOMIC EFFICIENCY ∂ 219