Final answer:
The buyer is operating on the principle of substitution by offering the market rate for an apartment building. Price ceilings can result in poorer housing quality due to decreased landlord spending on maintenance, illustrating opportunity costs in economics. Market dynamics, such as increasing demand, affect rent prices and housing availability.
Step-by-step explanation:
When a buyer offers the current market price for an apartment building, which is $100,000 in the given scenario, the buyer is operating on the principle of substitution. This principle states that a rational buyer would not pay more for a property than the cost of an equivalent substitute. The buyer’s offer reflects an understanding of the market value, which is based on what similar properties are being sold for in the same area.
The discussion about price ceilings, as mentioned, highlights potential negative impacts on both renters and landlords. Price ceilings can lead to renters obtaining lower quality housing due to less spending on maintenance and essentials. It demonstrates the economic concept that there's always an opportunity cost and emphasizes that cheaper housing comes with the trade-off of lower quality.
Additionally, when demand increases in a rental market as depicted in Figure 1, for instance, due to higher incomes or changing tastes, the result is often increased rent prices and available units. This change in market dynamics can lead to rent control becoming a politically charged subject, as communities grapple with the need for affordable housing.