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.

Someone is currently renting an apartment in lowell
Someone who will be moving to Lowell next year and who intends to rent an apartment
A landlord who intends to abide by the rent control law
A landlord who intends to ignore the law and illegally charge the highest rent possible for his apartments

Answer 1

The answers are:

1. For someone who is currently renting an apartment, he or she should be better off with rent control as long as they keep renting the same apartment. They will pay a lower price.
2. For someone who is moving to Lowell, he or she will be worse off because the quantity supplied for apartments on Lowell will decrease (price ceilings always decrease the quantity supplied). So it will be very hard for him to find a suitable apartment.
3. For the landlord that abides by the law, he will be worse off because he will lose money. He should be earning more money but due to the rent control, his earnings decrease.
4. For the landlord that decides to ignore the, he will eventually be worse off by his actions, since illegal activities always have a sour ending. He will eventually be caught and will probably have to pay a fine of some sort.