Question

Which of the following statements is true concerning the consequences of rent​ controls? A. Construction companies are big winners because more housing units are being built due to guaranteed rental income. B. Low income earners are big winners since it is easier to obtain housing. C. Property owners are big winners since they receive a guaranteed amount of rent. D. Upper income earners are big winners due to the fact that they can better exploit nonprice rationing devices. E. All of the above.

Answer 1

Answer: D. Upper income earners are big winners due to the fact that they can better exploit nonprice rationing devices.

Step-by-step explanation:

The market is price rationing which means that when there is more demand than supply for a particular good, it would allocate that good based on price i.e. it will increase the price which would reduce demand and so those who can afford it will afford it.

Nonprice rationing devices (like discrimination) attempt to do this same thing but without using the price mechanism when measures like rent controls are in place.

This means that landlords will start to selectively pick tenants so that they will be sure that they will be paid because they will feel that lower income earners (who can now rent the property due to the rent control) will have a harder time paying. Upper income earners will therefore be big winners because they will get preferential treatment.