Question

Rent control policies tend to cause:

Select one: a. a smaller shortage of housing in the short run and a larger shortage of housing in the long run.

b. a smaller surplus of housing in the short run and a greater surplus of housing in the long run.

c. a larger shortage of housing in the short run and a smaller shortage of housing in the long run.

d. a shortage of housing in the short run and a surplus of housing in the long run.

Answer 1

Option A.

• Rent control policies are those policies which prevent landlord's from raising the rents above the equilibrium wage level.
• These policies create smaller shortages in the short run and larger shortages in the long run.
• This is because, in the short run, both the demand and supply remains inelastic and the effect of reducing the rent remains only for a short period of time.
• But as in the long run demand and supply remains very elastic, there will be greater shortages. This will also lead to the deterioration of the housing units.