Question

The competitive equilibrium rent in the city of Lowell is currently​ $1,000 per month. The government decides to enact rent control and to establish a price ceiling for apartments of​ $750 per month. Briefly explain whether rent control is likely to make each of the following people better or worse off.

Answer 1

The people that are already renting an apartment are going to benefit from the price ceiling ($750) since it is lower than the equilibrium price of $1,000. They will be OK as long as they keep renting their apartments.

But since price ceilings lower the quantity supplied of apartments, if someone is currently looking for an apartment or is considering moving to another apartment, then they will be worse off. Less owners will be willing to rent their apartments at the price set ($750) because they are losing money. So there will be less available apartments which obviously will make it more difficult to find a new apartment to rent hurting both tenants and owners.