(Transcript of audio with descriptions. Transcript includes narrator headings and description headings of the visual content)
(Speaker)
In part C, you were asked to analyze how the policies affect both tenants and landlords.
(Description)
The following text is shown on the slide:
Suppose it is decided that rent control in New York City will be abolished and that market rents will now prevail. Assume that all rental units are identical and so are offered at the same rent. To address the plight of residents who may be unable to pay the market rent, an income supplement will be paid to all low income households equal to the difference between the old controlled rent and the new market rent.
c. Are tenants better off as a result of these policies? Are landlords better or worse off? Is society as a whole better or worse off?
(Speaker)
To answer this question, we're going to first look at the implications of removing the rental control. It may help to answer this question by exploring how removing the rental control affects consumer and producer surplus.
(Description)
The horizontal axis and the vertical axis are drawn. The horizontal axis is labeled as Quantity of Rental Units, no units are given. The vertical axis is labeled as Rental Price, no units are given.
A straight line sloping downward from the left upper corner to the right lower corner of the plot is drawn. It is labeled as Demand.
Another straight line sloping upwards from the left lower corner to the right upper corner of the plot is drawn. It is labeled as Supply.
The lines Demand and Supply intersect at the point with coordinates, Q and P.
A line parallel to the horizontal axis is drawn. It is located below the equilibrium price point with coordinates, Q and P. It is labeled as Price Ceiling. This line intersects with the vertical axis at point, P subscript C.
The Price Ceiling line intersects with the Supply line at the point with coordinates, Q subscript S, and P subscript C, and with the Demand line at the point with coordinates, Q subscript 0, and P subscript C.
(Speaker)
First, we need to find the level of consumer surplus under the rent control. With the rent control in place, consumers will pay a price equal to PC and purchase units up to QS. So consumer surplus will be the area under the demand curve and above the price ceiling up to QS housing units. We have shaded this area yellow.
(Description)
This area is represented by a four-sided figure which has the following vertices.
The first vertex is an intersection of the vertical axis with the Demand line.
The second vertex is an intersection of the Demand line with a line which intersects with the horizontal axis at point, Q subscript S, and is parallel to the vertical axis.
The third vertex is an intersection of the Price Ceiling line with the Supply line.
The fourth vertex is an intersection of the Price Ceiling line with the vertical axis.
This area is labeled CS and shaded yellow.
(Speaker)
Next, we need to find the producer surplus. This is found by taking the area below the price ceiling and above the supply line. We have shaded this area orange.
(Description)
This area is represented by a triangle which has the following vertices.
The first vortex is an intersection of the vertical and horizontal axes.
The second vertex is an intersection of the Price Ceiling line with the Supply line.
The third vertex is an intersection of the Price Ceiling line with the vertical axis.
This area is labeled PS and shaded orange.
(Speaker)
We saw that removing the price ceiling will cause price and quantity to return to the original equilibrium.
(Description)
Shading yellow is taken away from a part of the area CS.
This removed area is represented by a four-sided figure which has the following vertices.
The first vertex is point with coordinates, 0 and P, which is the y-coordinate of the equilibrium point.
The second vertex is the equilibrium point.
The third vertex is an intersection of the Price Ceiling line with the Supply line.
The fourth vertex is an intersection of the Price Ceiling line with the vertical axis.
(Speaker)
Doing so will cause consumer surplus to change. For the consumer, we can see that they will be able to purchase more rental units. This will make some consumers better off.
This is represented by the additional consumer surplus found in area A.
(Description)
This area is represented by a triangle which has the following vertices.
The first vortex is an intersection of the Demand line with a line which intersects with the horizontal axis at point, Q subscript S, and is parallel to the vertical axis.
The second vertex is the equilibrium point
The third vertex is an intersection of a line which intersects with the vertical axis at point, P, and is parallel to the horizontal axis, with a line which intersects with the horizontal axis at point, Q subscript S, and is parallel to the vertical axis.
This area is labeled A.
(Speaker)
Unfortunately, for the consumer that was able to find a rental unit under the price ceiling, they will now have to pay a higher price. They will be able to rent a nicer unit. But we don't know if this is going to leave the better off.
(Description)
A new area labeled B is briefly highlighted. It is represented by a rectangle with the following vertices.
The first vertex is an intersection of a line which intersects with the vertical axis at point, P, and is parallel to the horizontal axis, with a line which intersects with the horizontal axis at point, Q subscript S, and is parallel to the vertical axis.
The second vertex is an intersection of the Price Ceiling line with the Supply line.
The third vertex is an intersection of the Price Ceiling line with the vertical axis.
The fourth vertex is point with coordinates, 0 and P.
(Speaker)
Under the new equilibrium, the producer surplus will increase. Landlords will be able to rent more units at a higher price. We can see the gains in the highlighted region C.
(Description)
The region C is represented by a four-sided figure which has the following vertices.
The first vertex is an intersection of the Price Ceiling line with the vertical axis.
The second vertex is point with coordinates, 0 and P.
The third vertex is the equilibrium point.
The fourth vertex is an intersection of the Price Ceiling line with the supply line.
The region C is shaded orange.
(Speaker)
For producers, removing the price ceiling leaves them strictly better off.
Next, we have to analyze the effects of an income supplement on both tenants and landlords.
(Description)
A new graph is shown on the slide.
The horizontal axis and the vertical axis are drawn. The horizontal axis is labeled as Quantity of Rental Units, no units are given. The vertical axis is labeled as Rental Price, no units are given.
A straight line sloping downward from the left upper corner to the right lower corner of the plot is drawn. It is labeled as Demand.
Another straight line sloping upwards from the left lower corner to the right upper corner of the plot is drawn. It is labeled as Supply.
A line Demand shifted rightwards while retaining the same slope is labeled as Demand (Income Supplement).
The lines Demand and Supply intersect at the point with coordinates, Q subscript 1, and P subscript 1.
The lines Demand (Income Supplement) and Supply intersect at the point with coordinates, Q subscript 2, and P subscript 2.
(Speaker)
This time we are going to start with producer surplus. Under the original demand, we have highlighted the producer surplus area orange.
(Description)
This area is represented by a triangle which has the following vertices.
The first vertex is an intersection of the vertical and horizontal axes.
The second vertex is point with coordinates, 0 and P subscript 1.
The third vertex is point with coordinates, Q subscript 1, and P subscript 1.
This area is labeled PS and shaded orange.
(Speaker)
It's fairly easy to see that an income supplement to tenants will make landlords better off. They will be able to rent ore units at a higher price.
(Description)
A new area is shaded orange. This area is represented by a four-sided figure with the following vertices.
The first vertex is point with coordinates, 0 and P subscript 1.
The second vertex is point with coordinates, 0 and P subscript 2.
The third vertex is point with coordinates, Q subscript 2, and P subscript 2.
The fourth vertex is point with coordinates, Q subscript 1, and P subscript 1.
(Speaker)
Under the original equilibrium, consumer surplus is highlighted yellow.
(Description)
The briefly highlighted area is represented by a triangle with the following vertices.
The first vertex is point with coordinates, 0 and P subscript 1.
The second vertex is an intersection of the vertical axis with the Demand line.
The third vertex is point with coordinates, Q subscript 1, and P subscript 1.
This area is labeled CS.
(Speaker)
With the income supplement, the effects on tenants is unclear. Consumers will be able more units. Nut some tenants will now be forced to pay a higher price, especially if they don't receive any supplemental income.
Some consumers will be made worse off.
(Description)
The area CS shifts upwards, so that the bottom of the area is the line between point with coordinate, 0 and P subscript 1, and point with coordinates, Q subscript 2, and P subscript 2.
(Speaker)
Region A highlights the consumer surplus that is lost under the income supplements.
(Description)
The area A is represented by a four-sided figure with the following vertices.
The first vertex is point with coordinates, 0 and P subscript 1.
The second vertex is point with coordinates, 0 and P subscript 2.
The third vertex is an intersection of the line which intersects with the vertical axis at point, P subscript 1, and is parallel to the horizontal axis, with the Demand line.
The fourth vertex is point with coordinates, Q subscript 1, and P subscript 1.
(Speaker)
Highlighted region B shows the gain in consumer surplus from the income supplements.
Now more tenants will be able to afford rental units, making them better off. In the end, some tenants will be better off and others worse off.
(Description)
The region B is represented by a four-sided figure which has the following vertices.
The first vertex is an intersection of the line which intersects with the vertical axis at point, P subscript 1, and is parallel to the horizontal axis, with the Demand line.
The second vertex is an intersection of the Demand line with the vertical axis.
The third vertex is an intersection of the Demand (Income Supplement) line with a line, which intersects with the vertical axis at point of intersection between the Demand line and the vertical axis.
The fourth vertex is point with coordinates, Q subscript 2, and P subscript 2.