Macroeconomics and Organizational Behavior

Scenario 1 & 2: Findings and Analysis

Thersa A. Gass-Williams

Bryant & Stratton College

ECON195 – Macroeconomics

Instructor M. Stankowski

July 27, 2024

Scenario 1 Findings and Analysis

To: Audit Department

From: Theres A. Gass-Williams

Date: June 29, 2024

RE: Maintenance Cost Explanation

Part D Excel Chart

Part B

The increase in the construction of the screw led to a new equilibrium (B) to be (1,600; $4) rising from equilibrium (A) (1,200; $3) while the demand curve shifted to the right. The non-price determinant of demand that caused the demand to increase includes anticipation of the price increase due to the high demand for screws for house repair. The prices of related substitutes such as a rise in the prices of nails might leave consumers with no other option rather to shift to buying more screws and this causes price increase of the screws due to an increase in demand. A consumer preference for using screws for construction may have an impact on the demand surge for screws. The storm had large-scale damage to the coastal areas' houses meaning more locals needed screws for house repairs. High demand for screws by locals contributed to a shift in demand to the rights and an increase in prices of the screws resulting to a change in equilibrium point from A to B.

Part C

In case the supply of construction screws decreases it means that the supply curve will shift from the right (Old QS) to the right (New QS). The equilibrium price will increase from $3 to $4 while the equilibrium quantity will decrease from 1,200 to 800. The relevant non-price determinants of supply that could cause a decrease in supply include the impact of the storms on critical infrastructure such as roads in the coastal region disrupting the supply chain of screws leading to low supply and low circulation of the screws in the market. The coastal region might have limited vendor stocking construction screws and this might also be an issue that will affect the availability and supply of screws in the market. The production cost of the construction screws such as the cost of raw materials, labor might be so high discouraging manufacturers from venturing into construction screws or producing small quantities of construction screws creating a scarcity of the screw in the market.

Part D

The final market equilibrium is New Qs(1200), New Qd($5) which is a shift in demand curve from A(New Qs 800; Qd $4) and movement within New Supply curves from left to right indicating an increase in New Quantity demand and New price of construction screws. This market equilibrium indicates a new balance between supply and demand after considering the changes. For consumers, the increases in prices of construction screws will lead to higher overall repair costs for construction projects which is a burden to not only the nursing home administrator but also to the locals. The suppliers will be more willing to supply more construction screws due to an increase in prices of the construction screws. Therefore, the consumer will need to adjust their budget or seek an alternative solution to manage the increased cost of construction screws.

Scenario 2 Findings and Analysis

To: Office of the Mayor

From: Theresa A. Gass-Williams

Date: June 29, 2024

RE: Impact of Rental Control

Price Ceiling Chart

Market Impact Due to Price Ceiling

The impact of imposing a rent control price ceiling below the market equilibrium prices resulted in a shortage of rental units. The decision of the government to put a price ceiling below the equilibrium price means that the market could not naturally dictate the prices. So the quantity exceeded the quantity supplied resulting in a scarcity of the available units.

Unintended Consequences Due to Government Intervention

The unintended consequences arising from government intervention through price celling include quality deterioration of the rental since the landlord will not be incentivized more to improve the quality of the rental unit. Still, the landlord will not have enough savings to invest in maintenance and improvement of the rental units leading to a decline in the quality of rental housing. A black market may emerge whereby the renters and landlord may enter into informal agreements and illegal subletting as tenants and landlords try to find ways to circumvent government intervention. The supply of rental units may stagnate as demand continues to increase because the developers are discouraged from building new rental properties further exacerbating the supply shortage.

Recommendation

One alternative that the government might undertake other than rent control to make the rental units affordable includes subsidizing the renters. Providing direct financial assistance to low-income renters will help them to afford market-rate rentals without interfering with the natural ways of the market to dictate prices of rental units (Tavares-Lehmann et al., 2016). The second alternative includes providing investment incentives to developers through offering tax breaks, grant and market preferences, and favorable regulation especially those relating to zoning (Tavares-Lehmann et al., 2016). This measure incentivizes the developer to build more affordable housing units an effort that could end up increasing the supply of rental properties, addressing the root cause of high rents without imposing price controls.

Reference

Tavares-Lehmann, A. T., Toledano, P., Johnson, L., & Sachs, L. (Eds.). (2016). Rethinking investment incentives: Trends and policy options. Columbia University Press.