Question

The city councils of Bryan and College Station have decided to regulate rents in order to reduce student living expenses. Suppose the annual market-clearing rent for a two-bedroom apartment had been $700 per month and that rents were expected to increase to $900 within a year. The councils limit rents to their current$700/month level. Discuss what will happen to the rental price of an apartment after the imposition of rent controls. Do you think this policy will benefit all students? Why or why not? 


Answer 1

Ans)

The initial demand and supply condition will give equilibrium rent as $ 700 which is given in the question. This will result in Q1 number of apartments being rented. Now, without any regulation imposed, demand will increase to Q2 amount of apartments being rented which will raise the rent to $ 900 . It is mentioned in the question that after the regulation, the rent stays at the same equilibrium level of $ 700 per month. As a result due to excess demand, there will be shortage of apartments in the city .

It will benefit only those students who already have apartments and continue giving $ 700 per month. But the rest of students will be gravely affected with this policy as there will be shortage of apartments due to excess demand. Hence, they have to bear high rent and extra transportation costs as they have to search for new apartments to live in the city.