Question

Review the discussion in chapter one on the pitfalls in economic analysis. Then identify the fallacy,...

Review the discussion in chapter one on the pitfalls in economic analysis. Then identify the fallacy, or mistake in thinking, in each of the following statements:

a. Imposing rent control won’t impact the long-term quality or quantity of affordable housing

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Answer #1

( a ) Industrialization has forced people to move to the cities, however, steep price for housing may deter smooth urbanization.

Rent control is a tool used by the government to enable affordable rent for the citzens. According to this tool, government imposes a price ceiling and all the citizens are required to pay rents below that.

Many times these policies may help citizens save more money which they otherwise would have spent on paying rent for their housing needs.

However, it has been found that imposing rent control in the long run hurts the real estate sector, as builders and developers do not have any incentive in building new housing units, owing to rent control.

On the other hand, rent ceiling leads to shortage in housing market as can be seen in the graph below.

Therefore, we can see that the fallacy in this statement is that in the long run housing units's quantity supplied remains unimpacted, we have already mentioned above in the graph how rent ceiling leads to shortage of housing units.

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