Answer to Question #244883 in Microeconomics for Biba

Question

9. No one likes to pay rent. Yet scarcities of land and urban housing often cause rents to soar in cities. In response to rising rents and hostility toward landlords,
governments sometimes impose rent controls. These generally limit the increases on rent to a small year-to-year increase and can leave controlled rents far below free-market rents.
a. Redraw Figure 4 -13to illustrate the impact of rent controls for apartments.
b. What will be the effect of rent controls on the vacancy rate of apartments?
c. What nonrent options might arise as a substitute for the higher rents?
d. Explain the words of a European critic of rent controls: “Except for bombing, nothing is as effi cient at destroying a city as rent controls.” ( Hint: What would happen to maintenance?)

Answer 1

a)

b)

The vacancy rate will reduce due to increased demand.

c)

Providing subsidies to the employees to pay rent.

d)

European crisize rent control because it scares away investors and also makes mantainance of the apartments impossible.