Answer to Question #191320 in Microeconomics for Rabia Riaz

Question

What kind of price rationing strategy should be implemented by government to provide renters with houses at affordable price? Also mention the impact of this strategy on equilibrium quantity and equilibrium supplied of houses?

Answer 1

The implementation of a rent control policy, in which a limited cost of rent is fixed to ensure that everybody can afford it, is the price rationing strategy. As a result, houses become more accessible to the general public, resulting in the scarcity of rental rooms.

Because of the decreased profitability, this strategy will result in housing rationing, since most people who own houses for rent will not be able to provide them with ours. There will be a shortage of houses to rent as a result of this. Furthermore, because of the low rent paid, it may lower the standard of the housing. It may also cause more investors to abandon real estate in favor of more profitable investments. Overall, due to the use of this technique, the equilibrium quantity of houses would change, with the supply of usable rent space falling.