The quality of apartments will decrease due to the lower payoff from providing apartments for rent.
Lower rent is offset by lower housing quality.
During World War II, the U.S. government used a system of price controls to set maximum prices on all sorts of products.
The price per ounce increased by an average of 23 percent in 19 of 20 cases where the candy bars had shrunk.
Producers shrunk candy bars to match the low maximum price.
Exercise 3.6 is related to it.
Foodtimeline.org accessed "Food Timeline FAQ: Historic Food Prices" on February 20, 2012
Regardless of who lives in the apartment, Rent control specifies a maximum rent.
Rent control allows the rich and poor to live in the same apartment.
Rent control doesn't help the poor.
The government could use other policies to improve the economic circumstances of the poor.
There are two different effects of a minimum price.
When the government sets a minimum price that exceeds the equi librium price, the result is permanent excess supply.
Producers want to sell more than consumers want to buy so there is excess supply.
Minimum prices for agricultural goods are established around the world.
Under a price-support program, a government sets a minimum price for an agricultural product and buys surpluses at that price.
There are two policies that control quantities.
Many national governments use import bans or quota on the quantity of a product in order to restrict imports.
State and local governments license a wide range of businesses.
Many cities and states limit the number of businesses.
Licensing programs protect consumers from low-quality products and poor service, according to some people.
Bars, convenience stores, and gas stations are some of the establishments that could be considered nuisances for some people.
The market for taxi service and other markets in which licenses are common can be explained by the licensing of taxis.
10,000 miles of taxi service is provided by the industry at a price of $3 per mile.
There are 100 taxicabs in the market and each is capable of producing 100 miles of service per day.
The total surplus of the market is shown by the area between the demand curve and the supply curve.
If the city passes a law requiring each taxicab to have a license, and limits the number of medallions to 80, what would happen?
The first 80 people to show up at city hall will be given taxi medallions.
The policy of fixing the quantity of taxi service at 8,000 miles per day is shown in Panel B of Figure 21.6.
The city's 80 taxicabs provide only 8,000 miles of service, which is less than the 10,000 miles demanded by the medallion policy.
The price and quantity of taxi services are affected by the medallion policy.
The total surplus of the taxi market is decreased.
The higher price and smaller quantity decrease consumer surplus.
Depending on the shapes of the market supply and market demand curves, producer surplus could increase or decrease.
The medallions policy decreases the quantity of goods sold, decreasing the total surplus of the market.
The producers of the first 8,000 miles of service gain at the expense of consumers, but the surpluses that could have been gained between 8,000 and 10,000 miles are lost, so the total surplus of the market decreases.
The inefficiency of taxi medallions can be seen by looking at just the producers and consum ers who are excluded from the market.
The excluded consumers would be willing to pay for taxi service.
Although there are plenty of drivers who would be willing to provide taxi service at these prices, they can't do so without a medallion.
The policy causes inefficiency because it prevents riders and drivers from doing mutually beneficial transactions.
Many types of small businesses are limited by state and city governments.
The alternative policy is to restrict the location of the establishment in order to control the nuisance.
A policy that limits entry into a market increases prices, decreases quantity, and causes inefficiency in the market.
We need to compare the benefits of controlling nuisances to the losses of consumer and producer surplus.
Consumers pay more for taxi rides.
The people with the right to charge an artificially high price for taxi service are the winners.
People buy and sell taxi medallions.
The market value of a medallions shows the profits it can earn.
In New York City, Boston and Toronto, the market price of a medallions is over $200,000, $140,000 and $100,000, respectively.
The price of taxi service would go down and the market value of the medallions would go down.
The owners of the medallions use their political power to keep the system in place, which is why some city governments are reluctant to eliminate them.
The government can control the quantity of a good by issuing a limited number of business licenses to producers.
Limit the imports of a particular good is one way to control quantity.
An import restriction increases the market price and decreases the total surplus of the market.
Let's start with an unrestricted market to show the effects of import restrictions.
The domestic supply curve shows the quantity supplied by domestic firms.
To the right of the domestic curve lies the total supply curve, which shows the quantity supplied by both domestic and foreign firms.
Foreign firms also supply sugar, so the total supply exceeds the domestic supply.
Domestic firms don't supply sugar to the U.S. market because the minimum price is below.
The total supply of sugar would consist of only the domestic supply if foreign suppliers disappeared from the market.
The price would go up and the quantity would go down as a result of the import ban.
Domestic firms would produce all the sugar for the domestic market.
The total surplus in the sugar market would decrease as a result of the import ban.
The consumer and producer surpluses are shown in the shaded areas of the graphs.
The two blue triangles show the decrease in the U.S. con sumer surplus as a result of the import ban.
Domestic producers would gain from the import ban.
The import ban would cause a net loss for people in the United States.
The lumber was produced with soft lumber.
The policies protect 600 jobs in the industry and impose a cost of $632 million on consumers, so the cost per job protected is $1 million per year.
A recent study estimates the benefits of relaxing import restrictions on a variety of products.
The benefits would be over $1 billion for sugar, over $500 million for textiles and apparel, and over $200 million for footwear and leather goods.
An annual benefit of $2.6 billion would be generated by the simultaneous liberalization of trade in all products.
Exercise 4.5 is related to it.
Softwood lumber is subject to import quota and tariffs, which can be found in The Fruits of Free Trade by the Federal Reserve Bank of Dallas.
On the basis of increased employment in the "protected" industries, such as apparel and steel, import restrictions are often defended.
The trade-off is that more jobs in the protected industry, but higher prices for consumers.
According to the study commissioned by the Swedish Ministry for Foreign Affairs, the EU's import quota increases the cost of clothing for a family in the EU by about 270 euros per year.
The cost per job saved was more than 41,000 euros a year.
Explain how a tax is shifted.
It isn't consumers or input suppliers.
A tax changes people's behavior, so the total burden actually exceeds the revenue collected.