Question

3. Effects of rent control

Rent controls force landlords to price apartments below the equilibrium price level. An immediate effect is a shortage (excess demand) of apartments, because the quantity of apartments demanded is greater than the quantity supplied at the regulated price.

When cities prevent landlords from charging market rents, which of the following are common long-run outcomes? Check all that apply.

Nonprice methods of rationing emerge.

The future supply of rental housing units increases.

The quantity of available rental housing units falls.

Landlords earn lower profits from renting housing units, but the rent charged has no effect on either the quantity or quality of rental units.

Answer 1

Ans) Price ceiling is the legal maximum price that can be charged for any product. A binding price ceiling is below the equilibrium price and causes shortage. Eg- rent control.

In short run, rent control causes shortage. In long run, it leads to emergence of black markets (non price method of rationing), decrease in quality of houses provided because landowner will lose interest in maintaining property due to low price, discrimination by the landlords etc.

1) Non price method of rationing emerge.

2) The quantity of available housing units fall.