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A poll I asked in my PhD micro class today:
Suppose I introduce a price ceiling, like rent control. What will happen to the number of rental units?
Suppose I introduce a price ceiling, like rent control. What will happen to the number of rental units?
In my class, people could pick one or more options
77% chose option 1
77% chose option 2
15% chose option 3
This was great for making a point
77% chose option 1
77% chose option 2
15% chose option 3
This was great for making a point
We had just been studying monopolies.
If the landlord is a monopolist and the price ceiling is binding, price will go down and the *number of rental units will increase*
(static model, linear pricing)
If the landlord is a monopolist and the price ceiling is binding, price will go down and the *number of rental units will increase*
(static model, linear pricing)
It was interesting that the students, even after just discussing monopolies, hadnât considered this.
If thereâs market power, rent control doesnât necessarily reduce the number of units
If thereâs market power, rent control doesnât necessarily reduce the number of units
There are number of results like this that are taught in intro econ courses that stick with students and carry policy discourse, and can be challenged with the same basic econ tools ...
Of course, if the model is instead a fully competitive market, you get a reduction in units. And a dynamic model is more complicated.
What will happen in practice is then an empirical question.
What will happen in practice is then an empirical question.
Last fall I taught intro micro in a program called PNAP, and used the Core Econ textbook Economy, Society, & Public Policy
The book seems less likely to lead students to simple conclusions by including market power from the start
Itâs free online: http://core-econ.org
The book seems less likely to lead students to simple conclusions by including market power from the start
Itâs free online: http://core-econ.org
For those interested, we did this example today:
inverse demand: P = 100 - Q
marginal cost: 25
We solved for competitive equilibrium, monopolist, and rent control of $75 and $50
inverse demand: P = 100 - Q
marginal cost: 25
We solved for competitive equilibrium, monopolist, and rent control of $75 and $50
Here you see under a monopolist, rent control of $50 lowers price and expands supply:
Yes we did this super basic example in my PhD class, and it was still useful
At the PhD level, we do so much calculus that we sometimes miss out on the intuition ...
At the PhD level, we do so much calculus that we sometimes miss out on the intuition ...
