Long Run Supply Adjustment

Animation 1. Long Run Adjustment with a Price Ceiling

Animation 1 shows the change in short run supply over time. If you didn't catch it, click the "reload" button to see it again. (Nobody but the computer will know how many times you look at it, and the computer doesn't care!)

In the animation, we see the short run supply curve shifting leftward. It will continue to shift leftward as long as the price is below the long run supply curve. Once the short run supply curve has shifted far enough so that the quantity supplied is 500, the return on investment in apartments is equal to the return on other investments -- the opportunity cost of capital -- so the supply of apartments stabilizes. But the excess demand for apartments has increased. It is now 1250-500 = 750 units of apartment services.

This example illustrates the importance of long run supply and the opportunity cost of capital. But, before leaving the subject of rent controls, let's look at it from the renter's point of view.

The Renter's View