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Chapter 3: Problem 16

While crime rates fell across the country over the past few decades, they fell especially rapidly in Manhattan. At the same time, there were some neighborhoods in the New York metropolitan area in which the crime rate remained constant. Using supply-and-demand diagrams for rental housing, explain how a failing crime rate in Manhattan could make the residents in other neighborhoods worse off. (Hint: As people from around the country move to Manhattan, what happens to rents there? If people already living in Manhattan cannot afford to pay higher rent, what might they do?)

Short Answer

Expert verified
The falling crime rate in Manhattan leads to an increase in demand for rental housing there, causing rents to increase. The high rent in Manhattan forces some residents to move to the neighboring areas, in turn increasing the demand and hence the rents in these areas as well. As a result, residents of these neighboring areas who are faced with the increased rents are made worse off.

Step by step solution

01

Understanding the problem

It is noted from the problem that the crime rates have rapidly decreased in Manhattan, and this has created a certain effect on the housing market. The falling crime rate makes Manhattan a more attractive place to live in, hence increasing the demand for living spaces (rental housing) in the area.
02

Illustrated Effect on the Demand and Supply

As the demand for housing increases in Manhattan because of the reduction in crime rate, the demand curve for rental housing shifts to the right. The supply remains the same initially (vertical line), leading to an increase in price (rent). This is due to the limited supply of housing in an urban area like Manhattan.
03

Effect on Neighboring Areas

The increase in rent in Manhattan forces some people who cannot afford the higher rent to move out to the neighboring areas. This increases the demand for housing in the neighboring areas. Considering the supply in these areas remain the same, the rents in these areas also increase as a result, hence making the residents in these areas worse off.

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