Final answer:
Effective rent calculations evaluate the true cost of leases by acknowledging the time value of money, but they neglect factors like interlease risk and lease flexibility benefits. Price ceilings, like rent control, can lead to reduced rental unit availability and lower housing quality, illustrating opportunity costs. Therefore correct option is C
Step-by-step explanation:
The effective rent calculation is a financial metric used to assess the true cost of lease agreements, considering various factors, but it does have its limitations. One key aspect it captures is the time value of money, which allows for the comparison of the true cost of different lease terms by discounting future rent payments to their present value. However, this calculation does not directly account for interlease risk, re-leasing costs, or the advantages associated with lease flexibility, which may also impact the overall cost of leasing a property.
In relation to price ceilings, such as rent control, it's integral to understand they can create unintended consequences. While they may appear to benefit renters by capping the rent landlords can charge, they can paradoxically lead to a reduced supply of rental units as landlords might convert apartments into co-ops or condos, or reduce expenditures on maintenance and essentials. Hence, the opportunity cost of rent-controlled apartments can manifest as scarce housing and diminished living conditions