Question

Which of the following statements describe the results of the imposition of rent controls?

a.With the imposition of the controls,
b.quantity demanded rises.
c.With the imposition of the controls, quantity supplied decreases.
d.This policy tends to create an excess demand of the product.

Answer 1

Imposing rent controls increases the quantity demanded and decreases the quantity supplied, leading to a housing shortage and fewer apartments being rented than without the controls.

Step-by-step explanation:

The results of imposing rent controls often lead to mixed outcomes in the rental market, with quantity demanded increasing and quantity supplied decreasing, ultimately creating excess demand or a shortage of the product. When a city government enacts rent control laws, such as setting the maximum price at the original equilibrium (for instance, $500 for an apartment), it can cause the underlying economics to become imbalanced.

The quantity demanded may rise (e.g., to 19,000 rental units) while the quantity supplied remains stagnant (e.g., at 15,000 rental units), leading to a shortage of rental housing. Consequently, fewer apartments may be rented out under the price ceiling than would be the case without rent control (17,000 rental units at $600).