The Theory of Market Mechanism Case Study Example | Topics and Well Written Essays - 1000 words

The Theory of Market Mechanism - Case Study subjectDue to a fall in the rental, the supply of flats also declines, however, the quantity demanded of flats increases. This follows from the law of demand and supply. As a result, in that location is a gap between demand and supply or in different words, thither arises a shortage in the market for dwelling spaces. This shortage is not a rude(a) outcome but created by the suppliers or the landlords which result in an excess demand situation. This shortage generates cathode-ray oscilloscope for black marketing of flats at a higher rental.From the land lords point of view, the creation of shortage is sooner justifiable because the cost of maintenance and electricity has remained the same. In the process of black marketing, the flats argon rented out at market clearing rental or even more. Since dwelling place is a necessary compass point for any consumer, the tenants are ready to pay the excess amount above the ceiling price. Thus the re is discrimination because some are getting the flats at the government determined rental whereas some ca-ca to pay out a huge amount. Thus there is a reverse effect of what the Government intended. Here the concept of economic rent also comes into play. Because of the price ceiling, a number of landlords are not get outing to rent out their space, they are restricted from entering the market in fear of loss. in a flash suppose the Government decides to remove the ceiling and the rental price is determined by market mechanism, there will be huge opposition from both landlords and tenants because those who were getting the flats at lower rent will oppose and again the landlords who were operating in the black market will passively support the tenants who were opposing. This is because the landlords are better off in a black market where they extract huge profit. The lobbying cost, lawyer fees, world relation costs are substantial.